UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
ý☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20192020
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period __________ to __________
Commission File Number: 001-38534
Amerant Bancorp Inc.
(Exact Name of Registrant as Specified in Its Charter)
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| | |
Florida | 65-0032379 |
(State or other jurisdiction of incorporation or organization) | 65-0032379
(I.R.S. Employer Identification No.) |
220 Alhambra Circle
| |
Coral Gables, | Florida | 33134 |
(Address of principal executive offices) | (Zip Code) |
(305)
| 460-4038 |
Registrant’s telephone number, including area code |
Former name, former address and former fiscal year, if changed since last report: N/A |
Former Name, as listed on the last report:
Mercantil Bank Holding Corporation
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading Symbols | Name of exchange on which registered |
Class A Common Stock | AMTB | NASDAQ |
Class B Common Stock | AMTBB | NASDAQ |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesý No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yesý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”,filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ¨ | | Accelerated filer | ☒ | | |
Non-accelerated filer ¨ | | Smaller reporting company¨ | ☐ | | |
| | Emerging growth companyý |
Non-accelerated filer ý (Do not check if a smaller reporting company) ☒ | | |
If an emerging growth company, indicate by check mark if the company has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No ý
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
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| | |
Class | | Outstanding as of August 12, 20197, 2020 |
Class A Common Stock, $0.10 par value per share | | 28,985,99628,873,196 shares of Class A Common Stock |
Class B Common Stock, $0.10 par value per share | | 14,218,59613,286,137 shares of Class B Common Stock |
AMERANT BANCORP INC. AND SUBSIDIARIES
FORM 10-Q
June 30, 20192020
INDEX
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| FINANCIAL INFORMATION
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Part 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Amerant Bancorp Inc. and Subsidiaries
Consolidated Balance Sheets
| | (in thousands, except per share data) | (Unaudited) June 30, 2019 | | December 31, 2018 | |
(in thousands, except share data) | | (Unaudited) June 30, 2020 | | December 31, 2019 |
Assets | | | | | | |
Cash and due from banks | $ | 25,813 |
| | $ | 25,756 |
| $ | 35,651 |
| | $ | 28,035 |
|
Interest earning deposits with banks | 64,504 |
| | 59,954 |
| 181,698 |
| | 93,289 |
|
Cash and cash equivalents | 90,317 |
| | 85,710 |
| 217,349 |
| | 121,324 |
|
Securities | | | | | | |
Available for sale | 1,501,222 |
| | 1,586,051 |
| |
Held to maturity | 81,240 |
| | 85,188 |
| |
Debt securities available for sale | | 1,519,784 |
| | 1,568,752 |
|
Debt securities held to maturity | | 65,616 |
| | 73,876 |
|
Equity securities with readily determinable fair value not held for trading | | 24,425 |
| | 23,848 |
|
Federal Reserve Bank and Federal Home Loan Bank stock | 68,170 |
| | 70,189 |
| 64,986 |
| | 72,934 |
|
Securities | 1,650,632 |
| | 1,741,428 |
| 1,674,811 |
| | 1,739,410 |
|
Loans held for investment, gross | 5,812,755 |
| | 5,920,175 |
| 5,872,271 |
| | 5,744,339 |
|
Less: Allowance for loan losses | 57,404 |
| | 61,762 |
| 119,652 |
| | 52,223 |
|
Loans held for investment, net | 5,755,351 |
| | 5,858,413 |
| 5,752,619 |
| | 5,692,116 |
|
Bank owned life insurance | 208,965 |
| | 206,142 |
| 214,693 |
| | 211,852 |
|
Premises and equipment, net | 124,456 |
| | 123,503 |
| 128,327 |
| | 128,824 |
|
Deferred tax assets, net | 7,014 |
| | 16,310 |
| 15,647 |
| | 5,480 |
|
Goodwill | 19,193 |
| | 19,193 |
| 19,506 |
| | 19,506 |
|
Accrued interest receivable and other assets | 70,898 |
| | 73,648 |
| 107,771 |
| | 66,887 |
|
Total assets | $ | 7,926,826 |
| | $ | 8,124,347 |
| $ | 8,130,723 |
| | $ | 7,985,399 |
|
Liabilities and Stockholders' Equity | | | | | | |
Deposits | | | | | | |
Demand | | | | | | |
Noninterest bearing | $ | 785,727 |
| | $ | 768,822 |
| $ | 956,351 |
| | $ | 763,224 |
|
Interest bearing | 1,183,051 |
| | 1,288,030 |
| 1,186,613 |
| | 1,098,323 |
|
Savings and money market | 1,510,832 |
| | 1,588,703 |
| 1,447,661 |
| | 1,475,257 |
|
Time | 2,339,771 |
| | 2,387,131 |
| 2,434,077 |
| | 2,420,339 |
|
Total deposits | 5,819,381 |
| | 6,032,686 |
| 6,024,702 |
| | 5,757,143 |
|
Advances from the Federal Home Loan Bank and other borrowings | 1,125,000 |
| | 1,166,000 |
| 1,050,000 |
| | 1,235,000 |
|
Senior notes | | 58,419 |
| | — |
|
Junior subordinated debentures held by trust subsidiaries | 118,110 |
| | 118,110 |
| 64,178 |
| | 92,246 |
|
Accounts payable, accrued liabilities and other liabilities | 57,967 |
| | 60,133 |
| 103,226 |
| | 66,309 |
|
Total liabilities | 7,120,458 |
| | 7,376,929 |
| 7,300,525 |
| | 7,150,698 |
|
Commitments and contingencies (Note 12) |
| |
| |
Commitments and contingencies (Note 15) | |
| |
|
| | | | | | |
Stockholders’ equity | | | | | | |
Class A common stock, $0.10 par value, 400 million shares authorized; 28,985,996 shares issued and outstanding (2018: 26,851,832 shares issued and outstanding) | 2,899 |
| | 2,686 |
| |
Class B common stock, $0.10 par value, 100 million shares authorized; 17,751,053 shares issued; 14,218,596 shares outstanding (2018: 16,330,917 shares outstanding) | 1,775 |
| | 1,775 |
| |
Class A common stock, $0.10 par value, 400 million shares authorized; 28,873,196 shares issued and outstanding (2019 - 28,927,576 shares issued and outstanding) | | 2,887 |
| | 2,893 |
|
Class B common stock, $0.10 par value, 100 million shares authorized; 13,286,137 shares issued and outstanding (2019: 17,751,053 shares issued; 14,218,596 shares outstanding) | | 1,329 |
| | 1,775 |
|
Additional paid in capital | 417,338 |
| | 385,367 |
| 359,028 |
| | 419,048 |
|
Treasury stock, at cost; 3,532,457 shares of Class B common stock (2018: 1,420,136 shares of Class B common stock) | (46,373 | ) | | (17,908 | ) | |
Treasury stock, at cost; 3,532,457 shares of Class B common stock in 2019. | | — |
| | (46,373 | ) |
Retained earnings | 419,590 |
| | 393,662 |
| 432,227 |
| | 444,124 |
|
Accumulated other comprehensive income (loss) | 11,139 |
| | (18,164 | ) | |
Accumulated other comprehensive income | | 34,727 |
| | 13,234 |
|
Total stockholders' equity | 806,368 |
| | 747,418 |
| 830,198 |
| | 834,701 |
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Total liabilities and stockholders' equity | $ | 7,926,826 |
| | $ | 8,124,347 |
| $ | 8,130,723 |
| | $ | 7,985,399 |
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The accompanying notes are an integral part of these consolidated financial statements (unaudited).
3
Amerant Bancorp Inc. and Subsidiaries
Consolidated Statements of Operations and Comprehensive (Loss) Income (Unaudited)
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| Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | 2020 | | 2019 | | 2020 | | 2019 |
Interest income | | | | | | | |
Loans | $ | 53,483 |
| | $ | 66,801 |
| | $ | 113,271 |
| | $ | 133,523 |
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Investment securities | 10,628 |
| | 11,886 |
| | 21,693 |
| | 24,467 |
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Interest earning deposits with banks | 56 |
| | 539 |
| | 518 |
| | 1,543 |
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Total interest income | 64,167 |
| | 79,226 |
| | 135,482 |
| | 159,533 |
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Interest expense | | | | | | | |
Interest bearing demand deposits | 104 |
| | 301 |
| | 239 |
| | 575 |
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Savings and money market deposits | 1,569 |
| | 4,014 |
| | 4,835 |
| | 7,747 |
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Time deposits | 12,406 |
| | 12,740 |
| | 25,890 |
| | 25,293 |
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Advances from the Federal Home Loan Bank | 3,110 |
| | 6,292 |
| | 7,522 |
| | 12,497 |
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Senior notes | 84 |
| | — |
| | 84 |
| | — |
|
Junior subordinated debentures | 571 |
| | 2,090 |
| | 1,360 |
| | 4,195 |
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Total interest expense | 17,844 |
| | 25,437 |
| | 39,930 |
| | 50,307 |
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Net interest income | 46,323 |
| | 53,789 |
| | 95,552 |
| | 109,226 |
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Provision for (reversal of) loan losses | 48,620 |
| | (1,350 | ) | | 70,620 |
| | (1,350 | ) |
Net interest income (loss) after provision for (reversal of) loan losses | (2,297 | ) | | 55,139 |
| | 24,932 |
| | 110,576 |
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Noninterest income | | | | | | | |
Deposits and service fees | 3,438 |
| | 4,341 |
| | 7,728 |
| | 8,427 |
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Brokerage, advisory and fiduciary activities | 4,325 |
| | 3,736 |
| | 8,458 |
| | 7,424 |
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Change in cash surrender value of bank owned life insurance | 1,427 |
| | 1,419 |
| | 2,841 |
| | 2,823 |
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Securities gains, net | 7,737 |
| | 992 |
| | 17,357 |
| | 996 |
|
Cards and trade finance servicing fees | 273 |
| | 1,419 |
| | 668 |
| | 2,334 |
|
(Loss) gain on early extinguishment of advances from the Federal Home Loan Bank, net | (66 | ) | | — |
| | (73 | ) | | 557 |
|
Data processing and fees for other services | — |
| | 365 |
| | — |
| | 885 |
|
Other noninterest income | 2,619 |
| | 1,875 |
| | 4,684 |
| | 3,857 |
|
Total noninterest income | 19,753 |
| | 14,147 |
| | 41,663 |
| | 27,303 |
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Noninterest expense | | | | | | | |
Salaries and employee benefits | 21,570 |
| | 34,057 |
| | 50,896 |
| | 67,494 |
|
Occupancy and equipment | 4,220 |
| | 4,232 |
| | 8,023 |
| | 8,274 |
|
Telecommunication and data processing | 3,157 |
| | 3,233 |
| | 6,621 |
| | 6,259 |
|
Professional and other services fees | 3,965 |
| | 3,954 |
| | 6,919 |
| | 7,398 |
|
Depreciation and amortization | 1,960 |
| | 2,010 |
| | 3,919 |
| | 3,952 |
|
FDIC assessments and insurance | 1,240 |
| | 1,177 |
| | 2,358 |
| | 2,570 |
|
Other operating expenses | 628 |
| | 4,242 |
| | 2,871 |
| | 8,903 |
|
Total noninterest expenses | 36,740 |
| | 52,905 |
| | 81,607 |
| | 104,850 |
|
(Loss) Income before income tax | (19,284 | ) | | 16,381 |
| | (15,012 | ) | | 33,029 |
|
Income tax benefit (expense) | 4,005 |
| | (3,524 | ) | | 3,115 |
| | (7,101 | ) |
Net (loss) income | $ | (15,279 | ) | | $ | 12,857 |
| | $ | (11,897 | ) | | $ | 25,928 |
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| Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands, except per share data) | 2019 | | 2018 | | 2019 | | 2018 |
Interest income | | | | | | | |
Loans | $ | 66,801 |
| | $ | 62,448 |
| | $ | 133,523 |
| | $ | 122,118 |
|
Investment securities | 11,886 |
| | 12,709 |
| | 24,467 |
| | 24,450 |
|
Interest earning deposits with banks | 539 |
| | 759 |
| | 1,543 |
| | 1,279 |
|
Total interest income | 79,226 |
| | 75,916 |
| | 159,533 |
| | 147,847 |
|
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Interest expense | | | | | | | |
Interest bearing demand deposits | 301 |
| | 113 |
| | 575 |
| | 202 |
|
Savings and money market deposits | 4,014 |
| | 3,104 |
| | 7,747 |
| | 5,688 |
|
Time deposits | 12,740 |
| | 10,172 |
| | 25,293 |
| | 18,872 |
|
Advances from the Federal Home Loan Bank | 6,292 |
| | 6,511 |
| | 12,497 |
| | 12,501 |
|
Junior subordinated debentures | 2,090 |
| | 2,025 |
| | 4,195 |
| | 3,960 |
|
Securities sold under agreements to repurchase | — |
| | 2 |
| | — |
| | 2 |
|
Total interest expense | 25,437 |
| | 21,927 |
| | 50,307 |
| | 41,225 |
|
Net interest income | 53,789 |
| | 53,989 |
| | 109,226 |
| | 106,622 |
|
(Reversal of) provision for loan losses | (1,350 | ) | | 150 |
| | (1,350 | ) | | 150 |
|
Net interest income after (reversal of) provision for loan losses | 55,139 |
| | 53,839 |
| | 110,576 |
| | 106,472 |
|
| | | | | | | |
Noninterest income | | | | | | | |
Deposits and service fees | 4,341 |
| | 4,471 |
| | 8,427 |
| | 9,053 |
|
Brokerage, advisory and fiduciary activities | 3,736 |
| | 4,426 |
| | 7,424 |
| | 8,841 |
|
Change in cash surrender value of bank owned life insurance | 1,419 |
| | 1,474 |
| | 2,823 |
| | 2,918 |
|
Cards and trade finance servicing fees | 1,419 |
| | 1,173 |
| | 2,334 |
| | 2,235 |
|
Gain on early extinguishment of advances from the Federal Home Loan Bank | — |
| | 882 |
| | 557 |
| | 882 |
|
Securities gains, net | 992 |
| | 16 |
| | 996 |
| | 16 |
|
Data processing and fees for other services | 365 |
| | 613 |
| | 885 |
| | 1,494 |
|
Other noninterest income | 1,875 |
| | 1,931 |
| | 3,857 |
| | 3,492 |
|
Total noninterest income | 14,147 |
| | 14,986 |
| | 27,303 |
| | 28,931 |
|
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Noninterest expense | | | | | | | |
Salaries and employee benefits | 34,057 |
| | 34,932 |
| | 67,494 |
| | 68,973 |
|
Occupancy and equipment | 4,232 |
| | 4,060 |
| | 8,274 |
| | 7,775 |
|
Professional and other services fees | 3,954 |
| | 5,387 |
| | 7,398 |
| | 11,831 |
|
Telecommunication and data processing | 3,233 |
| | 3,011 |
| | 6,259 |
| | 6,095 |
|
Depreciation and amortization | 2,010 |
| | 1,945 |
| | 3,952 |
| | 4,086 |
|
FDIC assessments and insurance | 1,177 |
| | 1,468 |
| | 2,570 |
| | 2,915 |
|
Other operating expenses | 4,242 |
| | 1,835 |
| | 8,903 |
| | 6,608 |
|
Total noninterest expenses | 52,905 |
| | 52,638 |
| | 104,850 |
| | 108,283 |
|
Net income before income tax | 16,381 |
| | 16,187 |
| | 33,029 |
| | 27,120 |
|
Income tax expense | (3,524 | ) | | (5,764 | ) | | (7,101 | ) | | (7,268 | ) |
Net income | $ | 12,857 |
| | $ | 10,423 |
| | $ | 25,928 |
| | $ | 19,852 |
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The accompanying notes are an integral part of these consolidated financial statements (unaudited).
4
Amerant Bancorp Inc. and Subsidiaries
Consolidated Statements of Operations and Comprehensive (Loss) Income (Unaudited)
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| Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands, except per share data) | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Other comprehensive income (loss), net of tax | | | | | | | |
Net unrealized holding gains (losses) on securities available for sale arising during the period | $ | 14,313 |
| | $ | (5,454 | ) | | $ | 30,591 |
| | $ | (20,431 | ) |
Net unrealized holding gains (losses) on cash flow hedges arising during the period | — |
| | 2,139 |
| | (11 | ) | | 6,352 |
|
Reclassification adjustment for net (gains) losses included in net income | (1,025 | ) | | 2 |
| | (1,277 | ) | | 159 |
|
Other comprehensive income (loss) | 13,288 |
| | (3,313 | ) | | 29,303 |
| | (13,920 | ) |
Comprehensive income | $ | 26,145 |
| | $ | 7,110 |
| | $ | 55,231 |
| | $ | 5,932 |
|
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Earnings Per Share (Note 14): | | | | | | | |
Basic earnings per common share | $ | 0.30 |
| | $ | 0.25 |
| | $ | 0.61 |
| | $ | 0.47 |
|
Diluted earnings per common share | $ | 0.30 |
| | $ | 0.25 |
| | $ | 0.60 |
| | $ | 0.47 |
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| Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands, except per share data) | 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | |
Other comprehensive income, net of tax | | | | | | | |
Net unrealized holding gains on debt securities available for sale arising during the period | $ | 9,361 |
| | $ | 14,313 |
| | $ | 36,063 |
| | $ | 30,591 |
|
Net unrealized holding losses on cash flow hedges arising during the period | (160 | ) | | — |
| | (1,674 | ) | | (11 | ) |
Reclassification adjustment for items included in net income | (5,591 | ) | | (1,025 | ) | | (12,896 | ) | | (1,277 | ) |
Other comprehensive income | 3,610 |
| | 13,288 |
| | 21,493 |
| | 29,303 |
|
Comprehensive (loss) income | $ | (11,669 | ) | | $ | 26,145 |
| | $ | 9,596 |
| | $ | 55,231 |
|
| | | | | | | |
Earnings Per Share (Note 17): | | | | | | | |
Basic (loss) earnings per common share | $ | (0.37 | ) | | $ | 0.30 |
| | $ | (0.28 | ) | | $ | 0.61 |
|
Diluted (loss) earnings per common share | $ | (0.37 | ) | | $ | 0.30 |
| | $ | (0.28 | ) | | $ | 0.60 |
|
The accompanying notes are an integral part of these consolidated financial statements (unaudited).
5
Amerant Bancorp Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
Three and Six MonthsMonth Periods Ended June 30, 20192020 and 20182019
| | | Common Stock | | Additional Paid in Capital | | Treasury Stock | | Retained Earnings | | Accumulated Other Comprehensive (Loss) Income | | Total Stockholders' Equity | Common Stock | | Additional Paid in Capital | | Treasury Stock | | Retained Earnings | | Accumulated Other Comprehensive Income | | Total Stockholders' Equity |
(in thousands, except share data) | Shares Outstanding | | Issued Shares - Par Value | | Shares Outstanding | | Issued Shares - Par Value | |
Class A | | Class B | | Class A | | Class B | | Additional Paid in Capital | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive (Loss) Income | Class A | | Class B | | Class A | | Class B | | Additional Paid in Capital | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income |
Balance at December 31, 2017 | 24,737,470 |
| | 17,751,053 |
| | $ | 2,474 |
| | $ | 1,775 |
| | $ | 367,505 |
| $ | — |
| $ | 387,829 |
| $ | (6,133 | ) | $ | 753,450 |
| |
Dividends | — |
| | — |
| | — |
| | — |
| | — |
| — |
| (40,000 | ) | — |
| (40,000 | ) | |
Net income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 19,852 |
| | — |
| | 19,852 |
| |
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (13,920 | ) | | (13,920 | ) | |
Balance at June 30, 2018 | 24,737,470 |
| | 17,751,053 |
| | $ | 2,474 |
| | $ | 1,775 |
| | $ | 367,505 |
| | $ | — |
| | $ | 367,681 |
| | $ | (20,053 | ) | | $ | 719,382 |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2018 | 26,851,832 |
| | 16,330,917 |
| | $ | 2,686 |
| | $ | 1,775 |
| | $ | 385,367 |
| | $ | (17,908 | ) | | $ | 393,662 |
| | $ | (18,164 | ) | | $ | 747,418 |
| |
Common stock issued | 2,132,865 |
| | — |
| | 213 |
| | — |
| | 29,005 |
| | — |
| | — |
| | — |
| | 29,218 |
| |
Balance at December 31, 2019 | | 28,927,576 |
| | 14,218,596 |
| | $ | 2,893 |
| | $ | 1,775 |
| | $ | 419,048 |
| | $ | (46,373 | ) | | $ | 444,124 |
| | $ | 13,234 |
| | $ | 834,701 |
|
Repurchase of Class B common stock | — |
| | (2,112,321 | ) | | — |
| | — |
| | — |
| | (28,465 | ) | | — |
| | — |
| | (28,465 | ) | — |
| | (932,459 | ) | | — |
| | — |
| | — |
| | (15,239 | ) | | — |
| | — |
| | (15,239 | ) |
Treasury stock retired | | — |
| | — |
| | — |
| | (446 | ) | | (61,166 | ) | | 61,612 |
| | — |
| | — |
| | — |
|
Restricted stock issued | 1,299 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| 6,591 |
| | — |
| | 1 |
| | — |
| | (1 | ) | | — |
| | — |
| | — |
| | — |
|
Restricted stock surrendered | | (129 | ) | | — |
| | — |
| | — |
| | (2 | ) | | — |
| | — |
| | — |
| | (2 | ) |
Restricted stock forfeited | | (54,462 | ) | | — |
| | (6 | ) | | — |
| | 6 |
| | — |
| | — |
| | — |
| | — |
|
Stock-based compensation expense | — |
| | — |
| | — |
| | — |
| | 2,966 |
| | — |
| | — |
| | — |
| | 2,966 |
| — |
| | — |
| | — |
| | — |
| | 392 |
| | — |
| | — |
| | — |
| | 392 |
|
Net income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 25,928 |
| | — |
| | 25,928 |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3,382 |
| | — |
| | 3,382 |
|
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 29,303 |
| | 29,303 |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 17,883 |
| | 17,883 |
|
Balance at June 30, 2019 | 28,985,996 |
| | 14,218,596 |
| | $ | 2,899 |
| | $ | 1,775 |
| | $ | 417,338 |
| | $ | (46,373 | ) | | $ | 419,590 |
| | $ | 11,139 |
| | $ | 806,368 |
| |
Balance at March 31, 2020 | | 28,879,576 |
| | 13,286,137 |
| | $ | 2,888 |
| | $ | 1,329 |
| | $ | 358,277 |
| | $ | — |
| | $ | 447,506 |
| | $ | 31,117 |
| | $ | 841,117 |
|
Restricted stock forfeited | | (9,819 | ) | | — |
| | (1 | ) | | — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
|
Restricted stock units vested | | 3,439 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Stock-based compensation expense | | — |
| | — |
| | — |
| | — |
| | 750 |
| | — |
| | — |
| | — |
| | 750 |
|
Net loss | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (15,279 | ) | | — |
| | (15,279 | ) |
Other comprehensive income | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3,610 |
| | 3,610 |
|
Balance at June 30, 2020 | | 28,873,196 |
| | 13,286,137 |
| | $ | 2,887 |
| | $ | 1,329 |
| | $ | 359,028 |
| | $ | — |
| | $ | 432,227 |
| | $ | 34,727 |
| | $ | 830,198 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid in Capital | | Treasury Stock | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders' Equity |
(in thousands, except share data) | Shares Outstanding | | Issued Shares - Par Value | | | | | |
Class A | | Class B | | Class A | | Class B | | | | | |
Balance at December 31, 2018 | 26,851,832 |
| | 16,330,917 |
| | $ | 2,686 |
| | $ | 1,775 |
| | $ | 385,367 |
| | $ | (17,908 | ) | | $ | 393,662 |
| | $ | (18,164 | ) | | $ | 747,418 |
|
Common stock issued | 2,132,865 |
| | — |
| | 213 |
| | — |
| | 29,005 |
| | — |
| | — |
| | — |
| | 29,218 |
|
Repurchase of Class B common stock | — |
| | (2,112,321 | ) | | — |
| | — |
| | — |
| | (28,465 | ) | | — |
| | — |
| | (28,465 | ) |
Restricted stock issued | 1,299 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Stock-based compensation expense | — |
| | — |
| | — |
| | — |
| | 1,492 |
| | — |
| | — |
| | — |
| | 1,492 |
|
Net income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 13,071 |
| | — |
| | 13,071 |
|
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 16,015 |
| | 16,015 |
|
Balance at March 31, 2019 | 28,985,996 |
| | 14,218,596 |
| | $ | 2,899 |
| | $ | 1,775 |
| | $ | 415,864 |
| | $ | (46,373 | ) | | $ | 406,733 |
| | $ | (2,149 | ) | | $ | 778,749 |
|
Stock-based compensation expense | — |
| | — |
| | — |
| | — |
| | 1,474 |
| | — |
| | — |
| | — |
| | 1,474 |
|
Net income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 12,857 |
| | — |
| | 12,857 |
|
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 13,288 |
| | 13,288 |
|
Balance at June 30, 2019 | 28,985,996 |
| | 14,218,596 |
| | $ | 2,899 |
| | $ | 1,775 |
| | $ | 417,338 |
| | $ | (46,373 | ) | | $ | 419,590 |
| | $ | 11,139 |
| | $ | 806,368 |
|
The accompanying notes are an integral part of these consolidated financial statements (unaudited).
6
Amerant Bancorp Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
| | | Six Months Ended June 30, | Six Months Ended June 30, |
(in thousands) | 2019 | | 2018 | 2020 | | 2019 |
Cash flows from operating activities | | | | | | |
Net income | $ | 25,928 |
| | $ | 19,852 |
| |
Adjustments to reconcile net income to net cash provided by operating activities | | | | |
(Reversal of) provision for loan losses | (1,350 | ) | | 150 |
| |
Net (loss) income | | $ | (11,897 | ) | | $ | 25,928 |
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities | | | | |
Provision for (reversal of) loan losses | | 70,620 |
| | (1,350 | ) |
Net premium amortization on securities | 7,164 |
| | 8,447 |
| 7,448 |
| | 7,164 |
|
Depreciation and amortization | 3,952 |
| | 4,086 |
| 3,919 |
| | 3,952 |
|
Stock-based compensation expense | 2,966 |
| | — |
| 1,142 |
| | 2,966 |
|
Change in cash surrender value of bank owned life insurance | (2,823 | ) | | (2,918 | ) | (2,841 | ) | | (2,823 | ) |
Deferred taxes, securities net gains or losses and others | (2,150 | ) | | (4,374 | ) | |
Securities gains, net | | (17,357 | ) | | (996 | ) |
Deferred taxes and others | | (16,934 | ) | | (597 | ) |
Loss (gain) on early extinguishment of advances from the FHLB | | 73 |
| | (557 | ) |
Net changes in operating assets and liabilities: | | | | | | |
Accrued interest receivable and other assets | 9,518 |
| | (2,075 | ) | (6,551 | ) | | 9,518 |
|
Accounts payable, accrued liabilities and other liabilities | (9,736 | ) | | 3,071 |
| (652 | ) | | (9,736 | ) |
Net cash provided by operating activities | 33,469 |
| | 26,239 |
| 26,970 |
| | 33,469 |
|
| | | | | | |
Cash flows from investing activities | | | | | | |
Purchases of investment securities: | | | | | | |
Available for sale | (195,390 | ) | | (121,245 | ) | (293,027 | ) | | (195,390 | ) |
Federal Home Loan Bank stock | (12,968 | ) | | (13,642 | ) | (8,538 | ) | | (12,968 | ) |
| (208,358 | ) | | (134,887 | ) | (301,565 | ) | | (208,358 | ) |
Maturities, sales and calls of investment securities: | | | | | | |
Available for sale | 313,757 |
| | 122,805 |
| 383,073 |
| | 313,757 |
|
Held to maturity | 3,737 |
| | 1,338 |
| 7,886 |
| | 3,737 |
|
Federal Home Loan Bank stock | 14,987 |
| | 9,563 |
| 16,486 |
| | 14,987 |
|
| 332,481 |
| | 133,706 |
| 407,445 |
| | 332,481 |
|
Net decrease in loans | (109,951 | ) | | (174,197 | ) | |
Proceeds from loan portfolio sales | 214,416 |
| | 23,781 |
| |
Net purchases of premises and equipment, and others | (4,451 | ) | | (3,522 | ) | |
Net proceeds from sale of subsidiary | — |
| | 7,500 |
| |
Net cash provided by (used in) investing activities | 224,137 |
| | (147,619 | ) | |
Net increase in loans | | (146,318 | ) | | (109,951 | ) |
Proceeds from loan sales | | 15,235 |
| | 214,416 |
|
Net purchases of premises and equipment and others | | (3,331 | ) | | (4,451 | ) |
Net cash (used in) provided by investing activities | | (28,534 | ) | | 224,137 |
|
| | | | | | |
Cash flows from financing activities | | | | | | |
Net decrease in demand, savings and money market accounts | (165,945 | ) | | (165,745 | ) | |
Net (decrease) increase in time deposits | (47,360 | ) | | 205,910 |
| |
Net increase (decrease) in demand, savings and money market accounts | | 253,821 |
| | (165,945 | ) |
Net increase (decrease) in time deposits | | 13,738 |
| | (47,360 | ) |
Proceeds from Advances from the Federal Home Loan Bank and other borrowings | 590,000 |
| | 656,000 |
| 700,000 |
| | 590,000 |
|
Repayments of Advances from the Federal Home Loan Bank and other borrowings | (630,447 | ) | | (571,000 | ) | (885,073 | ) | | (630,447 | ) |
Dividend paid | — |
| | (40,000 | ) | |
Proceeds from issuance of Senior Notes, net of issuance costs | | 58,412 |
| | — |
|
Redemption of junior subordinated debentures | | (28,068 | ) | | — |
|
Proceeds from common stock issued - Class A | 29,218 |
| | — |
| — |
| | 29,218 |
|
Repurchase of common stock - Class B | (28,465 | ) | | — |
| (15,239 | ) | | (28,465 | ) |
Net cash (used in) provided by financing activities | (252,999 | ) | | 85,165 |
| |
Net increase (decrease) in cash and cash equivalents | 4,607 |
| | (36,215 | ) | |
Common stock retired to cover tax withholding | | (2 | ) | | — |
|
Net cash provided by (used in) financing activities | | 97,589 |
| | (252,999 | ) |
Net increase in cash and cash equivalents | | 96,025 |
| | 4,607 |
|
| | | | | | |
Cash and cash equivalents | | | | | | |
Beginning of period | 85,710 |
| | 153,445 |
| 121,324 |
| | 85,710 |
|
End of period | $ | 90,317 |
| | $ | 117,230 |
| $ | 217,349 |
| | $ | 90,317 |
|
| | | | | | |
| | | | |
| | | | |
The accompanying notes are an integral part of these consolidated financial statements (unaudited).
7
Amerant Bancorp Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited) (continued)
| | | | | | |
| | | | | | | | |
| Six Months Ended June 30, | Six Months Ended June 30, |
(in thousands) | 2019 | | 2018 | 2020 | | 2019 |
Supplemental disclosures of cash flow information | | | | | | |
Cash paid: | | | | | | |
Interest | $ | 49,868 |
| | $ | 40,491 |
| $ | 41,037 |
| | $ | 49,868 |
|
Income taxes | 3,424 |
| | 15,203 |
| 948 |
| | 3,424 |
|
The accompanying notes are an integral part of these consolidated financial statements (unaudited).
8
Amerant Bancorp Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
| |
1. | Business, Basis of Presentation and Summary of Significant Accounting Policies |
a) Business
Amerant Bancorp Inc., formerly Mercantil Bank Holding Corporation, (the “Company”), is a Florida corporation incorporated in 1985, which has operated since January 1987. The Company is a bank holding company registered under the Bank Holding Company Act of 1956, as a result of its 100% indirect ownership of Amerant Bank, N.A. (the “Bank”). The Company’s principal office is in the City of Coral Gables, Florida. The Bank is a member of the Federal Reserve Bank of Atlanta (“Federal Reserve Bank”) and the Federal Home Loan Bank of Atlanta (“FHLB”). The Bank has two3 principal subsidiaries, Amerant Investments, Inc., a securities broker-dealer (“Amerant Investments”), and Amerant Trust, N.A, a non-depository trust company (“Amerant Trust”).
Beginning, and Elant Bank & Trust (the “Cayman Bank”), a bank and trust company domiciled in the second quarter of 2019, the Company is managed using a single segment concept, on a consolidated basis, and management determined to discontinue its separate disclosures of operating segments. See “Reportable Segments” within “Basis of Presentation and Summary of Significant Accounting Policies” Cayman Islands acquired in this footnote for further details.November 2019.
The Company’s Class A common stock, par value $0.10 per common share, and Class B common stock, par value $0.10 per common share, are listed and trade on the Nasdaq Global Select Market under the symbols “AMTB” and “AMTBB,” respectively.
The Company is managed using a single segment concept, on a consolidated basis, and management determined that no separate current or historical reportable segment disclosures are required under generally accepted accounting principles in the United States of America (“U.S. GAAP”).
Initial Public Offering and Shares Repurchase
On December 21, 2018, the Company completed an initial public offering (the “IPO”). In March 2019, the Company repurchased the remaining shares of its Class B common stock held by Mercantil Servicios Financieros, C.A., the Company’s former parent company (“the Former Parent”). For more information about the IPO and the repurchase of Class B common stock previously held by the Former Parent, see Note 15 to our audited consolidated financial statements included in the Company’s annual report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 1, 2019March 16, 2020 (the “Form 10-K”). In
COVID-19 Pandemic
On March 2019, following11, 2020, the partial exerciseWorld Health Organization recognized an outbreak of a novel strain of the over-allotment option bycoronavirus, COVID-19, as a pandemic.
On March 13, 2020, the IPO’s underwriters, and completion of certain private placements of sharesPresident of the Company’s Class A common stock,Unites States of America (U.S.) declared a national state of emergency. In response to this outbreak, the governments of many states, cities and municipalities in the U.S., including the States of Florida, New York and Texas, have taken preventative or protective actions, such as imposing restrictions on business operations and advising or requiring individuals to limit or forego their time outside of their homes.
On March 16, 2020, the Company repurchasedactivated its Business Continuity Plan (“BCP”) to continue to provide its products and services during the remaining shares of its Class B common stock held by Mercantil Servicios Financieros, C.A., theCOVID-19 pandemic. The Company’s former parent company (“MSF” or “the Former Parent”). See Note 11BCP plan is framed within regulatory guidelines and subject to these unaudited interim consolidated financial statements for more information about the private placementsperiodic testing and the repurchase of Class B common stock previously held by MSF.
Rebranding
independent audits. On June 4, 2019,3, 2020, the Company’s stockholders approved an amendmentCompany started Phase 1 of reintroducing employees working remotely back to the Company’s Amendedworkplace. Given the increasing trend in COVID-19 cases in our markets, particularly in Florida and Restated ArticlesTexas, during the month of Incorporation (the “ArticlesJune and continuing in July, we are following a careful, phased-approach which includes a voluntary return of Incorporation”)a limited number of employees, based on work location, roles and responsibilities, and various safety protocols. Banking centers have returned to changeregular business hours, following strict federal, state and local government guidelines supporting the Company’s name from “Mercantil Bank Holding Corporation”safety of our employees and our customers. Amerant continues to “Amerant Bancorp Inc.” (the “Name Change”). The Name Change became effectivefocus on June 5, 2019. Each of the Company, the Bank and its principal subsidiaries now operate under the “Amerant” brand. serving customers without interruption, while maintaining a safe environment.
Amerant Bancorp Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), an approximately $2.0 trillion COVID-19 response bill to provide emergency economic relief to individuals, small businesses, mid-size companies, large corporations, hospitals and other public health facilities, and state and local governments, was enacted. The CARES Act allocated the Small Business Administration, or SBA, $350.0 billion to provide loans of up to $10.0 million per small business as defined in the CARES Act. On April 2, 2020, the Bank began participating in the SBA’s Paycheck Protection Program, or “PPP”, by providing loans to these businesses to cover payroll, rent, mortgage, healthcare, and utilities costs, among other essential expenses. On April 24, 2020, the Paycheck Protection Program and Health Care Enhancement Act, increasing funding to the PPP, was enacted. On July 4, 2020, new legislation was signed into law that extended the deadline to apply for loans under the PPP from June 30, 2020 until August 8, 2020. As of June 30, 2020, total PPP loans were $214.1 million, representing over 2,000 loan applications booked.
On March 26, 2020, the Company began offering loan payment relief options to customers impacted by the COVID-19 pandemic, including interest-only and/or forbearance options. These programs continued in the second quarter of 2020. As of June 30, 2020, loans modified under these programs totaled $1.1 billion. As of this date, loans in these programs on which the interest-only/or forbearance period expired at that date totaled $504.7 million, or 45.4% of total modified loans. The Company collected payments due on $8.4 million of modified loans through June 30, 2020. Modified loans totaling $496.3 million have payments due by July 31, 2020. In accordance with accounting and regulatory guidance, loans to borrowers benefiting from these measures are not considered Troubled Debt Restructurings (“TDRs”). The Company is closely monitoring the performance of these loans under the terms of the temporary relief granted.
b) Basis of Presentation and Summary of Significant Accounting Policies
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”)GAAP for interim financial information and the instructions to Form 10-Q and Article 10 of SEC Regulation S-X. Accordingly, they do not include all of the information and footnotes required for a fair statement of financial position, results of operations and cash flows in conformity with U.S. GAAP. These unaudited interim consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. These adjustments are of a normal, recurring nature. Interim period operating results may not be indicative of the operating results for a full year or any other period. These unaudited interim consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements as of December 31, 20182019 and 20172018 and for each of the three years in the period ended December 31, 20182019 and the accompanying footnote disclosures for the Company, which are included in the Form 10-K.
For a complete summary of our significant accounting policies, please see Note 1 to the Company’s audited consolidated financial statements in the Form 10-K.
Reportable Segments
Prior to the second quarter of 2019, the Company had four reportable segments: Personal and Commercial Banking (“PAC”), Corporate LATAM, Treasury, and Institutional. Results of these segments were presented on a managed basis. This structure was driven, among other things, by how the Company previously managed the business, how internal reporting was prepared and analyzed, and how management made decisions.
Beginning in the second quarter of 2019, all decisions, including those relating to loan growth and concentrations, deposit and other funding, market risk, credit risk, operational risk and pricing are made after assessing their effects on the Company as a whole, using a single segment concept. This change is consistent with the Company’s strategic shift to focus on community banking after the spin-off from its Former Parent in August 2018, and the rebranding of the Company launched in April 2019. As part of this strategic shift, the Company has significantly reduced its international lending activities, which had been largely allocated to the Corporate LATAM segment. As a result, management reassessed the Company’s remaining international business activities as well as the remaining three segments to determine whether the Company would continue to manage these businesses as separate operating segments, or consolidated as one single segment. In performing its assessment, management noted a similarity in the nature of products and services, processes, type of customers, distribution methods, and regulatory environment of its businesses. Further, management determined that it will no longer review discrete financial information related to the remaining operating segments for purposes of assessing performance or to allocate resources.
As a result of the above referenced strategic shift, assessments and determination, the Company is now managed as a single operating segment, on a consolidated basis. Therefore, beginning with the quarter ended June 30, 2019, the Company determined that no separate current or historical reportable segment disclosures are required under U.S. GAAP.
Amerant Bancorp Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.periods. Significant estimates made by management include: (i) the determination of the allowance for loan losses; (ii) the fair values of securities and the value assigned to goodwill during the annualperiodic goodwill impairment test;tests; (iii) the cash surrender value of bank owned life insurance; and (iv) the determination of whether the amount of deferred tax assets will more likely than not be realized. Management believes that these estimates are appropriate. Actual results could differ from these estimates.
c) Subsequent Events
On July 10, 2019 the Company announced the redemption of all $15.0 million of its outstanding 10.60% trust preferred securities issued by its Commercebank Statutory Trust II (“Statutory Trust II”), and all $10.0 million of its outstanding 10.18% trust preferred securities issued by its Commercebank Capital Trust III (“Capital Trust III”). The Capital Trust III securities were redeemed on July 31, 2019 at the contractual call price of 101.018% and the Statutory Trust II securities will be redeemed on September 7, 2019, the earliest call date, at the contractual call price of 100.53%. The Company will simultaneously redeem all $15.5 million and $10.4 million junior subordinated debentures held by its Statutory Trust II and Capital Trust III, respectively, as part of these redemption transactions. These redemptions together will reduce total cash and cash equivalents by approximately $23.8 million, financial liabilities by approximately $25.9 million and other assets by approximately $2.4 million. In addition, third quarter 2019 results will include a total charge of $0.3 million for the premiums paid to security holders from these redemptions. The redemption of these legacy Tier 1 capital instruments will reduce the Company’s Tier 1 equity capital by a total of $23.5 million.
The Company’s regulatory capital ratios will continue to exceed regulatory minimums to be well-capitalized, upon these redemptions.
In August 2019, the Company entered into interest rate swaps that were designated as cash flow hedges to manage exposure of floating rate interest payments on all of the Company’s outstanding variable-rate junior subordinated debentures. See Note 7 to our unaudited interim consolidated financial statements in this Form 10-Q for details on the interest rate swap transaction.
All significant subsequent events have been recognized or disclosed in these unaudited interim consolidated financial statements.
Amerant Bancorp Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
Amortized cost
The COVID-19 pandemic has severely restricted the level of economic activity in the U.S. and approximate fair valuesaround the world since March 2020. Several states and cities across the U.S., including the States of securities availableFlorida, New York and Texas and cities where the Company has banking centers, LPOs and where the Company’s principal place of business is located, have also implemented quarantines, restrictions on travel, “shelter at home” orders, and restrictions on types of business that may continue to operate. While some of these measures and restrictions have been lifted and certain businesses have reopened in the second quarter 2020, the Company cannot predict when restrictions currently in place may be lifted, or whether restrictions that have been lifted will need to be imposed or tightened in the future if viewed as necessary due to public health concerns.The Company considered the impact of COVID-19 on the significant estimates management used. The Company recorded a provision for sale are summarizedloan losses of $22.0 million in the three months ended March 31, 2020, mostly driven by $19.8 million of estimated losses reflecting deterioration in the macro-economic environment as follows: |
| | | | | | | | | | | | | | | |
| June 30, 2019 |
| Amortized Cost | | Gross Unrealized | | Estimated Fair Value |
(in thousands) | | Gains | | Losses | |
U.S. government sponsored enterprise debt securities | $ | 930,137 |
| | $ | 9,440 |
| | $ | (5,907 | ) | | $ | 933,670 |
|
Corporate debt securities | 268,724 |
| | 3,186 |
| | (204 | ) | | 271,706 |
|
U.S. government agency debt securities | 201,074 |
| | 576 |
| | (2,910 | ) | | 198,740 |
|
Municipal bonds | 70,668 |
| | 2,659 |
| | — |
| | 73,327 |
|
Mutual funds | 24,269 |
| | — |
| | (490 | ) | | 23,779 |
|
Commercial paper | — |
| | — |
| | — |
| | — |
|
| $ | 1,494,872 |
| | $ | 15,861 |
| | $ | (9,511 | ) | | $ | 1,501,222 |
|
|
| | | | | | | | | | | | | | | |
| December 31, 2018 |
| Amortized Cost | | Gross Unrealized | | Estimated Fair Value |
(in thousands) | | Gains | | Losses | |
U.S. government sponsored enterprise debt securities | $ | 840,760 |
| | $ | 2,197 |
| | $ | (22,178 | ) | | $ | 820,779 |
|
Corporate debt securities | 357,602 |
| | 139 |
| | (5,186 | ) | | 352,555 |
|
U.S. government agency debt securities | 221,682 |
| | 187 |
| | (4,884 | ) | | 216,985 |
|
Municipal bonds | 162,438 |
| | 390 |
| | (2,616 | ) | | 160,212 |
|
Mutual funds | 24,266 |
| | — |
| | (1,156 | ) | | 23,110 |
|
Commercial paper | 12,448 |
| | — |
| | (38 | ) | | 12,410 |
|
| $ | 1,619,196 |
| | $ | 2,913 |
| | $ | (36,058 | ) | | $ | 1,586,051 |
|
Ata result of the impact of COVID-19, compared to no loan loss provision in the three months ended March 31, 2019. The Company recorded a provision for loan losses of $48.6 million in the three months ended June 30, 20192020, including $20.2 million related to the estimated deterioration of our loan portfolio caused by the COVID-19 pandemic, compared to a release of loan loss reserves of $1.4 million in the three months ended June 30, 2019. In addition, the Company reviewed goodwill for potential impairment on an interim basis as of June 30, 2020. As as result of its evaluation, the Company determined that goodwill was considered not impaired and, therefore, no impairment charges were recorded. Given the uncertainty regarding the spread and severity of COVID-19 and its adverse effects on the U.S. and global economies, the extent to which the COVID-19 pandemic may impact the anticipated amount of estimated loan defaults and losses and consequently, the adequacy of the provision for loan losses, whether it will result in impairments to goodwill or other intangibles in future periods or, in general, impact the Company’s financial condition or results of operations is uncertain and cannot be accurately predicted at this time.
c) Recently Issued Accounting Pronouncements
Issued and Not Yet Adopted
Facilitation of the Effects of Reference Rate Reform on Financial Reporting
On March 12, 2020, the FASB issued amendments to guidance applicable to contracts, hedging relationships, and other transactions affected that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. These amendments provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2018,2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments also allow entities to make a one-time election to sell, transfer, or both sell and transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform and that are classified as held to maturity before January 1, 2020. These amendments are effective for all entities as of March 12, 2020 through December 31, 2022. An entity may elect to apply these amendments to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020 and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020. An entity may elect to apply the amendments for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected, these amendments must be applied prospectively for all eligible contract modifications and hedging relationships. The Company had no foreign sovereign or government agency debt securities.did not elect any of optional expedients as of June 30, 2020. The Company is in the process of evaluating the implications of these amendments to its current efforts for reference rate reform implementation.
Amerant Bancorp Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
New Guidance on Leases
In December 2018, the Financial Accounting Standards Board (“FASB”) issued amendments to new guidance issued in February 2016 for the recognition and measurement of all leases which has not yet been adopted by the Company. The amendments address certain lessor’s issues associated with: (i) sales taxes and other similar taxes collected from lessees, (ii) certain lessor costs and (iii) recognition of variable payments for contracts with lease and nonlease components. The new guidance on leases issued in February 2016 requires lessees to recognize a right-of-use asset and a lease liability for most leases within the scope of the guidance. There were no significant changes to the guidance for lessors. These amendments, and the related pending new guidance, can be adopted using a modified retrospective transition at the beginning of the earliest comparative period presented, and provides for certain practical expedients.
In May 2020, the FASB again amended the effective date of the new guidance on leases. Previously, the amendments and related new guidance on leases were effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021, for private companies. The new guidance on leases is now effective for fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. Early adoption is still permitted.
The Company has completed the process of gathering a complete inventory of its lease contracts, migrating identified lease data onto a new system, and is in the final stages of testing and evaluating the results of testing. Based on these results, we currently expect to recognize an asset and a corresponding lease liability for an amount to be less than 1% of the Company’s total consolidated assets at adoption. The Company plans to adopt the new guidance in its consolidated financial statements for the year ending December 31, 2021.
New Guidance on Accounting for Credit Losses on Financial Instruments
In June 2016, the FASB issued the new guidance on accounting for current expected credit losses on financial instruments (“CECL.”) The new guidance introduces an approach based on expected losses to estimate credit losses on various financial instruments, including loans. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination.
In November 2018, the FASB issued amendments to pending new guidance on CECL to, among other things, align the implementation date for private companies’ annual financial statements with the implementation date for their interim financial statements. Prior to the issuance of these amendments, the guidance on accounting for CECL was effective for private companies for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. These amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, for private companies.
In November 2019, the FASB amended the effective date of the new guidance on CECL. Previously, the amendments and related new guidance on CECL was effective for fiscal years beginning after December 15, 2021, and interim periods within those years, for private companies. The new guidance on CECL is now effective for fiscal years beginning after December 15, 2022 and interim periods within those years. Early adoption is still permitted. The new guidance on CECL is effective for fiscal years beginning after December 15, 2019, and interim periods within those years, for public companies.
The Company is currently assessing the impact that these changes will have on its consolidated financial statements, when adopted. As an Emerging Growth Company, or EGC, the Company currently plans to adopt the
Amerant Bancorp Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
new guidance on CECL in its consolidated financial statements for the year ending December 31, 2023, or earlier in the event the Company ceases to be an EGC.
d) Subsequent Events
The effects of significant subsequent events, if any, have been recognized or disclosed in these unaudited interim consolidated financial statements.
2. Interest Earning Deposits with Banks
At June 30, 2020 and December 31, 2019, interest earning deposits with banks are mainly comprised of deposits with the Federal Reserve of approximately $182 million and $93 million, respectively. At June 30, 2020 and December 31, 2019, the average interest rate on these deposits was approximately 0.54% and 2.19%, respectively. These deposits mature within one year.
Amortized cost and approximate fair values of debt securities available for sale are summarized as follows: |
| | | | | | | | | | | | | | | |
| June 30, 2020 |
| Amortized Cost | | Gross Unrealized | | Estimated Fair Value |
(in thousands) | | Gains | | Losses | |
U.S. government-sponsored enterprise debt securities | $ | 807,667 |
| | $ | 24,955 |
| | $ | (702 | ) | | $ | 831,920 |
|
Corporate debt securities | 376,251 |
| | 12,318 |
| | (2,460 | ) | | 386,109 |
|
U.S. government agency debt securities | 230,255 |
| | 4,653 |
| | (2,454 | ) | | 232,454 |
|
U.S. treasury securities | 2,508 |
| | 7 |
| | — |
| | 2,515 |
|
Municipal bonds | 62,168 |
| | 4,618 |
| | — |
| | 66,786 |
|
| $ | 1,478,849 |
| | $ | 46,551 |
| | $ | (5,616 | ) | | $ | 1,519,784 |
|
|
| | | | | | | | | | | | | | | |
| December 31, 2019 |
| Amortized Cost | | Gross Unrealized | | Estimated Fair Value |
(in thousands) | | Gains | | Losses | |
U.S. government sponsored enterprise debt securities | $ | 927,205 |
| | $ | 9,702 |
| | $ | (3,795 | ) | | $ | 933,112 |
|
Corporate debt securities | 247,836 |
| | 5,002 |
| | (2 | ) | | 252,836 |
|
U.S. government agency debt securities | 230,384 |
| | 895 |
| | (2,882 | ) | | 228,397 |
|
U.S. treasury securities | 106,112 |
| | 1 |
| | (1,877 | ) | | 104,236 |
|
Municipal bonds | 47,652 |
| | 2,519 |
| | — |
| | 50,171 |
|
| $ | 1,559,189 |
| | $ | 18,119 |
| | $ | (8,556 | ) | | $ | 1,568,752 |
|
At June 30, 2020 and December 31, 2019, the Company had 0 foreign sovereign or foreign government agency debt securities. The Company had investments in foreign corporate debt securities of $16.3 million and $5.2 million at June 30, 2020 and December 31, 2019, respectively.
Amerant Bancorp Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
In the three and six month periods ended June 30, 2020 and 2019, proceeds from sales, gross realized gains, gross realized losses of debt securities available for sale were as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | 2020 | | 2019 | | 2020 | | 2019 |
Proceeds from sales, redemptions and calls of debt securities available for sale | $ | 100,666 |
| | $ | 103,683 |
| | $ | 239,738 |
| | $ | 216,212 |
|
| | | | | | | |
Gross realized gains | 7,537 |
| | 1,125 |
| | 16,803 |
| | 1,573 |
|
Gross realized losses | — |
| | (133 | ) | | (23 | ) | | (577 | ) |
Realized gains, net | $ | 7,537 |
| | $ | 992 |
| | $ | 16,780 |
| | $ | 996 |
|
The Company’s investment in debt securities available for sale with unrealized losses that are deemed temporary, aggregated by the length of time that individual securities have been in a continuous unrealized loss position, are summarized below: |
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2019 |
| Less Than 12 Months | | 12 Months or More | | Total |
(in thousands) | Estimated Fair Value | | Unrealized Loss | | Estimated Fair Value | | Unrealized Loss | | Estimated Fair Value | | Unrealized Loss |
U.S. government sponsored enterprise debt securities | $ | 41,500 |
| | $ | (307 | ) | | $ | 436,675 |
| | $ | (5,600 | ) | | $ | 478,175 |
| | $ | (5,907 | ) |
Corporate debt securities | 305 |
| | (1 | ) | | 48,637 |
| | (203 | ) | | 48,942 |
| | (204 | ) |
Municipal bonds | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
U.S. government agency debt securities | 6,402 |
| | (42 | ) | | 141,248 |
| | (2,868 | ) | | 147,650 |
| | (2,910 | ) |
Mutual funds | — |
| | — |
| | 23,530 |
| | (490 | ) | | 23,530 |
| | (490 | ) |
Commercial paper | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| $ | 48,207 |
| | $ | (350 | ) | | $ | 650,090 |
| | $ | (9,161 | ) | | $ | 698,297 |
| | $ | (9,511 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2020 |
| Less Than 12 Months | | 12 Months or More | | Total |
(in thousands) | Estimated Fair Value | | Unrealized Loss | | Estimated Fair Value | | Unrealized Loss | | Estimated Fair Value | | Unrealized Loss |
U.S. government-sponsored enterprise debt securities | $ | 63,660 |
| | $ | (341 | ) | | $ | 15,430 |
| | $ | (361 | ) | | $ | 79,090 |
| | $ | (702 | ) |
Corporate debt securities | 65,800 |
| | (2,460 | ) | | — |
| | — |
| | 65,800 |
| | (2,460 | ) |
U.S. government agency debt securities | 19,577 |
| | (131 | ) | | 92,772 |
| | (2,323 | ) | | 112,349 |
| | (2,454 | ) |
| $ | 149,037 |
| | $ | (2,932 | ) | | $ | 108,202 |
| | $ | (2,684 | ) | | $ | 257,239 |
| | $ | (5,616 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 |
| Less Than 12 Months | | 12 Months or More | | Total |
(in thousands) | Estimated Fair Value | | Unrealized Loss | | Estimated Fair Value | | Unrealized Loss | | Estimated Fair Value | | Unrealized Loss |
U.S. government sponsored enterprise debt securities | $ | 239,446 |
| | $ | (1,740 | ) | | $ | 180,274 |
| | $ | (2,055 | ) | | $ | 419,720 |
| | $ | (3,795 | ) |
Corporate debt securities | 8,359 |
| | (1 | ) | | 300 |
| | (1 | ) | | 8,659 |
| | (2 | ) |
U.S. government agency debt securities | 41,300 |
| | (251 | ) | | 117,040 |
| | (2,631 | ) | | 158,340 |
| | (2,882 | ) |
U.S. treasury securities | 97,471 |
| | (1,877 | ) | | — |
| | — |
| | 97,471 |
| | (1,877 | ) |
| $ | 386,576 |
| | $ | (3,869 | ) | | $ | 297,614 |
| | $ | (4,687 | ) | | $ | 684,190 |
| | $ | (8,556 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2018 |
| Less Than 12 Months | | 12 Months or More | | Total |
(in thousands) | Estimated Fair Value | | Unrealized Loss | | Estimated Fair Value | | Unrealized Loss | | Estimated Fair Value | | Unrealized Loss |
U.S. government sponsored enterprise debt securities | $ | 90,980 |
| | $ | (2,995 | ) | | $ | 608,486 |
| | $ | (19,183 | ) | | $ | 699,466 |
| | $ | (22,178 | ) |
Corporate debt securities | 243,667 |
| | (3,800 | ) | | 75,762 |
| | (1,386 | ) | | 319,429 |
| | (5,186 | ) |
Municipal bonds | 63,580 |
| | (939 | ) | | 133,886 |
| | (3,945 | ) | | 197,466 |
| | (4,884 | ) |
U.S. government agency debt securities | 1,449 |
| | (6 | ) | | 94,331 |
| | (2,610 | ) | | 95,780 |
| | (2,616 | ) |
Mutual funds | — |
| | — |
| | 22,865 |
| | (1,156 | ) | | 22,865 |
| | (1,156 | ) |
Commercial paper | 12,410 |
| | (38 | ) | | — |
| | — |
| | 12,410 |
| | (38 | ) |
| $ | 412,086 |
| | $ | (7,778 | ) | | $ | 935,330 |
| | $ | (28,280 | ) | | $ | 1,347,416 |
| | $ | (36,058 | ) |
At June 30, 20192020 and December 31, 2018,2019, the Company held certain debt securities issued or guaranteed by the U.S. government and U.S. government-sponsored entities and agencies were held by the Company.agencies. The Company believes these issuers to present little credit risk. The Company does not considerconsiders these securities to beare not other-than-temporarily impaired because the decline in fair value is attributable to changes in interest rates and investment securities markets, generally, and not credit quality. The Company does not intend to sell these debt securities and it is more likely than not that it will not be required to sell the securities before their anticipated recovery.
Amerant Bancorp Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
Unrealized losses on corporate debt securities at June 30, 2019, and municipal and corporate debt securities at December 31, 2018, are attributable to changes in interest rates and investment securities markets, generally, and as a result, temporary in nature. The Company does not considerconsiders these securities to beare not other-than-temporarily impaired because the issuers of these debt securities are considered to be high quality, and managementgenerally present little credit risk. The Company does not intend to sell these investments and it is more likely than not that it will not be required to sell these investments before their anticipated recovery.
Amortized cost and approximate fair values of securities held to maturity, are summarized as follows:
|
| | | | | | | | | | | | | | | |
| June 30, 2019 |
| Amortized Cost | | Gross Unrealized | | Estimated Fair Value |
(in thousands) | | Gains | | Losses | |
Securities Held to Maturity - | | | | | | | |
U.S. government sponsored enterprise debt securities | $ | 78,448 |
| | $ | 497 |
| | $ | (382 | ) | | $ | 78,563 |
|
U.S. Government agency debt securities | 2,792 |
| | 54 |
| | — |
| | 2,846 |
|
| $ | 81,240 |
| | $ | 551 |
| | $ | (382 | ) | | $ | 81,409 |
|
|
| | | | | | | | | | | | | | | |
| December 31, 2018 |
| Amortized Cost | | Gross Unrealized | | Estimated Fair Value |
(in thousands) | | Gains | | Losses | |
Securities Held to Maturity - | | | | | | | |
U.S. government sponsored enterprise debt securities | $ | 82,326 |
| | $ | — |
| | $ | (3,889 | ) | | $ | 78,437 |
|
U.S. Government agency debt securities | 2,862 |
| | — |
| | (49 | ) | | 2,813 |
|
| $ | 85,188 |
| | $ | — |
| | $ | (3,938 | ) | | $ | 81,250 |
|
Contractual maturities of debt securities at June 30, 20192020 are as follows:
|
| | | | | | | | | | | | | | | |
| Available for Sale | | Held to Maturity |
(in thousands) | Amortized Cost | | Estimated Fair Value | | Amortized Cost | | Estimated Fair Value |
Within 1 year | $ | 78,742 |
| | $ | 79,080 |
| | $ | — |
| | $ | — |
|
After 1 year through 5 years | 173,554 |
| | 178,179 |
| | — |
| | — |
|
After 5 years through 10 years | 306,852 |
| | 322,314 |
| | 11,515 |
| | 12,020 |
|
After 10 years | 919,701 |
| | 940,211 |
| | 54,101 |
| | 55,064 |
|
| $ | 1,478,849 |
| | $ | 1,519,784 |
| | $ | 65,616 |
| | $ | 67,084 |
|
|
| | | | | | | | | | | | | | | |
| Available for Sale | | Held to Maturity |
(in thousands) | Amortized Cost | | Estimated Fair Value | | Amortized Cost | | Estimated Fair Value |
Within 1 year | $ | 44,267 |
| | $ | 44,283 |
| | $ | — |
| | $ | — |
|
After 1 year through 5 years | 217,122 |
| | 218,528 |
| | — |
| | — |
|
After 5 years through 10 years | 175,701 |
| | 179,155 |
| | — |
| | — |
|
After 10 years | 1,033,513 |
| | 1,035,477 |
| | 81,240 |
| | 81,409 |
|
No contractual maturities | 24,269 |
| | 23,779 |
| | — |
| | — |
|
| $ | 1,494,872 |
| | $ | 1,501,222 |
| | $ | 81,240 |
| | $ | 81,409 |
|
Equity securities with readily available fair value not held for trading consist of mutual funds with an original cost of $24.0 million, and fair value of $24.4 million and $23.8 million as of June 30, 2020 and December 31, 2019, respectively. These equity securities have no stated maturities. During the three and six month periods ended June 30, 2020, the Company recognized unrealized gains of $0.2 million and $0.6 million, respectively, related to the change in fair value of these mutual funds. NaN gain was recognized during the three and six month periods ended June 30, 2019.The loan portfolio consists of the following loan classes:
14 |
| | | | | | | |
(in thousands) | June 30, 2020 | | December 31, 2019 |
Real estate loans | | | |
Commercial real estate | | | |
Non-owner occupied | $ | 1,841,075 |
| | $ | 1,891,802 |
|
Multi-family residential | 823,450 |
| | 801,626 |
|
Land development and construction loans | 284,766 |
| | 278,688 |
|
| 2,949,291 |
| | 2,972,116 |
|
Single-family residential | 589,713 |
| | 539,102 |
|
Owner occupied | 938,511 |
| | 894,060 |
|
| 4,477,515 |
| | 4,405,278 |
|
Commercial loans | 1,247,455 |
| | 1,234,043 |
|
Loans to financial institutions and acceptances | 16,597 |
| | 16,552 |
|
Consumer loans and overdrafts | 130,704 |
| | 88,466 |
|
| $ | 5,872,271 |
| | $ | 5,744,339 |
|
Amerant Bancorp Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
The loan portfolio consistsAt June 30, 2020 and December 31, 2019, loans with an outstanding principal balance of $1.5 billion and $1.6 billion, respectively, were pledged as collateral to secure advances from the following loan classes:
|
| | | | | | | |
(in thousands) | June 30, 2019 | | December 31, 2018 |
Real estate loans | | | |
Commercial real estate | | | |
Nonowner occupied | $ | 1,872,493 |
| | $ | 1,809,356 |
|
Multi-family residential | 968,080 |
| | 909,439 |
|
Land development and construction loans | 291,304 |
| | 326,644 |
|
| 3,131,877 |
| | 3,045,439 |
|
Single-family residential | 535,563 |
| | 533,481 |
|
Owner occupied | 836,334 |
| | 777,022 |
|
| 4,503,774 |
| | 4,355,942 |
|
Commercial loans | 1,180,736 |
| | 1,380,428 |
|
Loans to financial institutions and acceptances | 25,006 |
| | 68,965 |
|
Consumer loans and overdrafts | 103,239 |
| | 114,840 |
|
| $ | 5,812,755 |
| | $ | 5,920,175 |
|
FHLB.The amounts above include loans under syndication facilities of approximately $609$477 million and $807$562 million at June 30, 20192020 and December 31, 2018,2019, respectively, which include Shared National Credit facilities and agreements to enter into credit agreements amongwith other lenders (club deals), and other agreements.
The following tables summarize international loans by country, net of loans fully collateralized with cash of approximately $20.6$11.9 million and $19.5$15.2 million at June 30, 20192020 and December 31, 2018,2019, respectively.
| | | June 30, 2019 | June 30, 2020 | | December 31, 2019 |
(in thousands) | Venezuela
| | Others (1) | | Total | Venezuela | | Others (1) | | Total | | Venezuela | | Others (1) | | Total |
Real estate loans | | | | | | | | | | | | | | | | |
Single-family residential (2) | $ | 116,218 |
| | $ | 6,636 |
| | $ | 122,854 |
| $ | 93,409 |
| | $ | 9,771 |
| | $ | 103,180 |
| | $ | 103,979 |
| | $ | 7,692 |
| | $ | 111,671 |
|
Commercial loans | — |
| | 57,374 |
| | 57,374 |
| — |
| | 45,029 |
| | 45,029 |
| | — |
| | 43,850 |
| | 43,850 |
|
Loans to financial institutions and acceptances | — |
| | 5,000 |
| | 5,000 |
| — |
| | 10 |
| | 10 |
| | — |
| | 5 |
| | 5 |
|
Consumer loans and overdrafts (3)(4) | 21,197 |
| | 8,368 |
| | 29,565 |
| 361 |
| | 7,585 |
| | 7,946 |
| | 8,318 |
| | 7,593 |
| | 15,911 |
|
| $ | 137,415 |
| | $ | 77,378 |
| | $ | 214,793 |
| $ | 93,770 |
| | $ | 62,395 |
| | $ | 156,165 |
| | $ | 112,297 |
| | $ | 59,140 |
| | $ | 171,437 |
|
__________________
| |
(1) | Loans to borrowers in 1512 other countries which do not individually exceed 1% of total assets.assets (14 countries at December 31, 2019). |
| |
(2) | Corresponds to mortgage loans secured by single-family residential properties located in the U.S. |
| |
(3) | Mostly At December 31, 2019, Venezuela balances are mostly comprised of credit card extensions of credit to customers with deposits with the Bank. In April 2019, theThe Company revisedphased out its legacy credit card programproducts to further strengthen its credit quality. The Company stoppedDuring the charging privilegesfirst quarter of its smallest and riskiest cardholders and required repayment2020, the remaining balances related to the credit card product were repaid, therefore, there are 0 outstanding credit card balances as of their balances by November 2019. Other cardholders’ charging privileges will end in October 2019 and they will be required to repay all balances by JanuaryJune 30, 2020. |
| |
(4) | Overdrafts to customers outside the United States were de minimis at June 30, 20192020 and December 31, 2018.2019. |
The age analysis of the loan portfolio by class, including nonaccrual loans, as of June 30, 2020 and December 31, 2019 are summarized in the following tables:
Amerant Bancorp Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
|
| | | | | | | | | | | | |
| December 31, 2018 |
(in thousands) | | Venezuela | | Others (1) | | Total |
Real estate loans | | | | | | |
Single-family residential (2) | | $ | 128,971 |
| | $ | 6,467 |
| | $ | 135,438 |
|
Commercial loans | | — |
| | 73,636 |
| | 73,636 |
|
Loans to financial institutions and acceptances | | — |
| | 49,000 |
| | 49,000 |
|
Consumer loans and overdrafts (3) | | 28,191 |
| | 13,494 |
| | 41,685 |
|
| | $ | 157,162 |
| | $ | 142,597 |
| | $ | 299,759 |
|
__________________
| |
(1) | Loans to borrowers in 17 other countries which do not individually exceed 1% of total assets. |
| |
(2) | Corresponds to mortgage loans secured by single-family residential properties located in the U.S. |
| |
(3) | Mostly comprised of credit card extensions of credit to customers with deposits with the Bank. Charging privileges for Venezuela resident card holders are suspended when the cardholders’ average deposits decline below the outstanding credit balance. At the beginning of 2018, the Company changed the monitoring of such balances from quarterly to monthly. |
The age analysis of the loan portfolio by class, including nonaccrual loans, as of June 30, 2019 and December 31, 2018 are summarized in the following tables: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2019 |
| Total Loans, Net of Unearned Income | | | | Past Due | | Total Loans in Nonaccrual Status | | Total Loans 90 Days or More Past Due and Accruing |
(in thousands) | | Current | | 30-59 Days | | 60-89 Days | | Greater than 90 Days | | Total Past Due | | |
Real estate loans | | | | | | | | | | | | | | | |
Commercial real estate | | | | | | | | | | | | | | | |
Nonowner occupied | $ | 1,872,493 |
| | $ | 1,870,529 |
| | $ | 1,964 |
| | $ | — |
| | $ | — |
| | $ | 1,964 |
| | $ | 1,964 |
| | $ | — |
|
Multi-family residential | 968,080 |
| | 967,423 |
| | — |
| | — |
| | 657 |
| | 657 |
| | 657 |
| | — |
|
Land development and construction loans | 291,304 |
| | 291,304 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| 3,131,877 |
| | 3,129,256 |
| | 1,964 |
| | — |
| | 657 |
| | 2,621 |
| | 2,621 |
| | — |
|
Single-family residential | 535,563 |
| | 528,921 |
| | 916 |
| | 1,573 |
| | 4,153 |
| | 6,642 |
| | 9,432 |
| | — |
|
Owner occupied | 836,334 |
| | 832,924 |
| | 2,715 |
| | — |
| | 695 |
| | 3,410 |
| | 10,528 |
| | — |
|
| 4,503,774 |
| | 4,491,101 |
| | 5,595 |
| | 1,573 |
| | 5,505 |
| | 12,673 |
| | 22,581 |
| | — |
|
Commercial loans | 1,180,736 |
| | 1,176,688 |
| | 872 |
| | 80 |
| | 3,096 |
| | 4,048 |
| | 10,032 |
| | — |
|
Loans to financial institutions and acceptances | 25,006 |
| | 25,006 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Consumer loans and overdrafts | 103,239 |
| | 102,464 |
| | 419 |
| | 250 |
| | 106 |
| | 775 |
| | 114 |
| | 23 |
|
| $ | 5,812,755 |
| | $ | 5,795,259 |
| | $ | 6,886 |
| | $ | 1,903 |
| | $ | 8,707 |
| | $ | 17,496 |
| | $ | 32,727 |
| | $ | 23 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2020 |
| Total Loans, Net of Unearned Income | | | | Past Due | | Total Loans in Nonaccrual Status | | Total Loans 90 Days or More Past Due and Accruing |
(in thousands) | | Current | | 30-59 Days | | 60-89 Days | | Greater than 90 Days | | Total Past Due | | |
Real estate loans | | | | | | | | | | | | | | | |
Commercial real estate | | | | | | | | | | | | | | | |
Non-owner occupied | $ | 1,841,075 |
| | $ | 1,834,585 |
| | $ | 6,490 |
| | $ | — |
| | $ | — |
| | $ | 6,490 |
| | $ | 8,426 |
| | $ | — |
|
Multi-family residential | 823,450 |
| | 823,450 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Land development and construction loans | 284,766 |
| | 284,766 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| 2,949,291 |
| | 2,942,801 |
| | 6,490 |
| | — |
| | — |
| | 6,490 |
| | 8,426 |
| | — |
|
Single-family residential | 589,713 |
| | 584,115 |
| | 38 |
| | 940 |
| | 4,620 |
| | 5,598 |
| | 7,975 |
| | — |
|
Owner occupied | 938,511 |
| | 934,271 |
| | 502 |
| | 47 |
| | 3,691 |
| | 4,240 |
| | 11,828 |
| | — |
|
| 4,477,515 |
| | 4,461,187 |
| | 7,030 |
| | 987 |
| | 8,311 |
| | 16,328 |
| | 28,229 |
| | — |
|
Commercial loans | 1,247,455 |
| | 1,239,173 |
| | 815 |
| | 3,198 |
| | 4,269 |
| | 8,282 |
| | 48,961 |
| | — |
|
Loans to financial institutions and acceptances | 16,597 |
| | 16,597 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Consumer loans and overdrafts | 130,704 |
| | 130,611 |
| | 23 |
| | 12 |
| | 58 |
| | 93 |
| | 70 |
| | — |
|
| $ | 5,872,271 |
| | $ | 5,847,568 |
| | $ | 7,868 |
| | $ | 4,197 |
| | $ | 12,638 |
| | $ | 24,703 |
| | $ | 77,260 |
| | $ | — |
|
16 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 |
| Total Loans, Net of Unearned Income | | | | Past Due | | Total Loans in Nonaccrual Status | | Total Loans 90 Days or More Past Due and Accruing |
(in thousands) | | Current | | 30-59 Days | | 60-89 Days | | Greater than 90 Days | | Total Past Due | | |
Real estate loans | | | | | | | | | | | | | | | |
Commercial real estate | | | | | | | | | | | | | | | |
Non-owner occupied | $ | 1,891,802 |
| | $ | 1,891,801 |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | 1,936 |
| | $ | — |
|
Multi-family residential | 801,626 |
| | 801,626 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Land development and construction loans | 278,688 |
| | 278,688 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| 2,972,116 |
| | 2,972,115 |
| | 1 |
| | — |
| | — |
| | 1 |
| | 1,936 |
| | — |
|
Single-family residential | 539,102 |
| | 530,399 |
| | 4,585 |
| | 1,248 |
| | 2,870 |
| | 8,703 |
| | 7,291 |
| | — |
|
Owner occupied | 894,060 |
| | 888,158 |
| | 1,360 |
| | 1,724 |
| | 2,818 |
| | 5,902 |
| | 14,130 |
| | — |
|
| 4,405,278 |
| | 4,390,672 |
| | 5,946 |
| | 2,972 |
| | 5,688 |
| | 14,606 |
| | 23,357 |
| | — |
|
Commercial loans | 1,234,043 |
| | 1,226,320 |
| | 4,418 |
| | 608 |
| | 2,697 |
| | 7,723 |
| | 9,149 |
| | — |
|
Loans to financial institutions and acceptances | 16,552 |
| | 16,552 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Consumer loans and overdrafts | 88,466 |
| | 88,030 |
| | 215 |
| | 176 |
| | 45 |
| | 436 |
| | 416 |
| | 5 |
|
| $ | 5,744,339 |
| | $ | 5,721,574 |
| | $ | 10,579 |
| | $ | 3,756 |
| | $ | 8,430 |
| | $ | 22,765 |
| | $ | 32,922 |
| | $ | 5 |
|
Amerant Bancorp Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2018 |
| Total Loans, Net of Unearned Income | | | | Past Due | | Total Loans in Nonaccrual Status | | Total Loans 90 Days or More Past Due and Accruing |
(in thousands) | | Current | | 30-59 Days | | 60-89 Days | | Greater than 90 Days | | Total Past Due | | |
Real estate loans | | | | | | | | | | | | | | | |
Commercial real estate | | | | | | | | | | | | | | | |
Nonowner occupied | $ | 1,809,356 |
| | $ | 1,809,356 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Multi-family residential | 909,439 |
| | 909,439 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Land development and construction loans | 326,644 |
| | 326,644 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| 3,045,439 |
| | 3,045,439 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Single-family residential | 533,481 |
| | 519,730 |
| | 7,910 |
| | 2,336 |
| | 3,505 |
| | 13,751 |
| | 6,689 |
| | 419 |
|
Owner occupied | 777,022 |
| | 773,876 |
| | 2,800 |
| | 160 |
| | 186 |
| | 3,146 |
| | 4,983 |
| | — |
|
| 4,355,942 |
| | 4,339,045 |
| | 10,710 |
| | 2,496 |
| | 3,691 |
| | 16,897 |
| | 11,672 |
| | 419 |
|
Commercial loans | 1,380,428 |
| | 1,378,022 |
| | 704 |
| | 1,062 |
| | 640 |
| | 2,406 |
| | 4,772 |
| | — |
|
Loans to financial institutions and acceptances | 68,965 |
| | 68,965 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Consumer loans and overdrafts | 114,840 |
| | 113,227 |
| | 474 |
| | 243 |
| | 896 |
| | 1,613 |
| | 35 |
| | 884 |
|
| $ | 5,920,175 |
| | $ | 5,899,259 |
| | $ | 11,888 |
| | $ | 3,801 |
| | $ | 5,227 |
| | $ | 20,916 |
| | $ | 16,479 |
| | $ | 1,303 |
|
At June 30, 2019 and December 31, 2018, loans with an outstanding principal balance of $1.7 billion were pledged as collateral to secure advances from the FHLB.
| |
4.5. | Allowance for Loan Losses |
The analyses by loan segment of the changes in the allowance for loan losses for the three and six month periods ended June 30, 20192020 and 2018,2019, and its allocation by impairment methodology and the related investment in loans, net as of June 30, 20192020 and 20182019 are summarized in the following tables: | | | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2020 |
(in thousands) | Real Estate | | Commercial | | Financial Institutions | | Consumer and Others | | Total | Real Estate | | Commercial | | Financial Institutions | | Consumer and Others | | Total |
Balances at beginning of the period | $ | 22,456 |
| | $ | 29,100 |
| | $ | 106 |
| | $ | 8,660 |
| | $ | 60,322 |
| $ | 36,430 |
| | $ | 29,062 |
| | $ | 42 |
| | $ | 7,414 |
| | $ | 72,948 |
|
(Reversal of) provision for loan losses | (556 | ) | | (2,646 | ) | | (46 | ) | | 1,898 |
| | (1,350 | ) | |
Provision for loan losses | | 18,068 |
| | 30,542 |
| | (42 | ) | | 52 |
| | 48,620 |
|
Loans charged-off | | | | | | | | | | | | | | | | | | |
Domestic | — |
| | (874 | ) | | — |
| | (210 | ) | | (1,084 | ) | — |
| | (2,075 | ) | | — |
| | (44 | ) | | (2,119 | ) |
International | — |
| | (43 | ) | | — |
| | (894 | ) | | (937 | ) | — |
| | — |
| | — |
| | (7 | ) | | (7 | ) |
Recoveries | — |
| | 287 |
| | — |
| | 166 |
| | 453 |
| — |
| | 50 |
| | — |
| | 160 |
| | 210 |
|
Balances at end of the period | $ | 21,900 |
| | $ | 25,824 |
| | $ | 60 |
| | $ | 9,620 |
| | $ | 57,404 |
| $ | 54,498 |
| | $ | 57,579 |
| | $ | — |
| | $ | 7,575 |
| | $ | 119,652 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 |
(in thousands) | Real Estate | | Commercial | | Financial Institutions | | Consumer and Others | | Total |
Balances at beginning of the period | $ | 25,040 |
| | $ | 22,482 |
| | $ | 42 |
| | $ | 4,659 |
| | $ | 52,223 |
|
Provision for loan losses | 29,458 |
| | 38,072 |
| | (42 | ) | | 3,132 |
| | 70,620 |
|
Loans charged-off | | | | | | | | | |
Domestic | — |
| | (3,176 | ) | | — |
| | (266 | ) | | (3,442 | ) |
International | — |
| | (34 | ) | | — |
| | (258 | ) | | (292 | ) |
Recoveries | — |
| | 235 |
| | — |
| | 308 |
| | 543 |
|
Balances at end of the period | $ | 54,498 |
| | $ | 57,579 |
| | $ | — |
| | $ | 7,575 |
| | $ | 119,652 |
|
Amerant Bancorp Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
|
| | | | | | | | | | | | | | | | | | | |
| June 30, 2020 |
(in thousands) | Real Estate | | Commercial | | Financial Institutions | | Consumer and Others | | Total |
Allowance for loan losses by impairment methodology: | | | | | | | | | |
Individually evaluated | $ | 2,565 |
| | $ | 23,640 |
| | $ | — |
| | $ | 1,499 |
| | $ | 27,704 |
|
Collectively evaluated | 51,933 |
| | 33,939 |
| | — |
| | 6,076 |
| | 91,948 |
|
| $ | 54,498 |
| | $ | 57,579 |
| | $ | — |
| | $ | 7,575 |
| | $ | 119,652 |
|
Investment in loans, net of unearned income: | | | | | | | | | |
Individually evaluated | $ | 8,426 |
| | $ | 61,101 |
| | $ | — |
| | $ | 8,022 |
| | $ | 77,549 |
|
Collectively evaluated | 2,918,353 |
| | 2,270,212 |
| | 16,597 |
| | 589,560 |
| | 5,794,722 |
|
| $ | 2,926,779 |
| | $ | 2,331,313 |
| | $ | 16,597 |
| | $ | 597,582 |
| | $ | 5,872,271 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2019 |
(in thousands) | Real Estate | | Commercial | | Financial Institutions | | Consumer and Others | | Total |
Balances at beginning of the period | $ | 22,456 |
| | $ | 29,100 |
| | $ | 106 |
| | $ | 8,660 |
| | $ | 60,322 |
|
(Reversal of) provision for loan losses | (556 | ) | | (2,646 | ) | | (46 | ) | | 1,898 |
| | (1,350 | ) |
Loans charged-off | | | | | | | | |
|
Domestic | — |
| | (874 | ) | | — |
| | (210 | ) | | (1,084 | ) |
International | — |
| | (43 | ) | | — |
| | (894 | ) | | (937 | ) |
Recoveries | — |
| | 287 |
| | — |
| | 166 |
| | 453 |
|
Balances at end of the period | $ | 21,900 |
| | $ | 25,824 |
| | $ | 60 |
| | $ | 9,620 |
| | $ | 57,404 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2019 |
(in thousands) | Real Estate | | Commercial | | Financial Institutions | | Consumer and Others | | Total |
Balances at beginning of the period | $ | 22,778 |
| | $ | 30,018 |
| | $ | 445 |
| | $ | 8,521 |
| | $ | 61,762 |
|
(Reversal of) provision for loan losses | (878 | ) | | (2,677 | ) | | (385 | ) | | 2,590 |
| | (1,350 | ) |
Loans charged-off | | | | | | | | | |
Domestic | — |
| | (1,866 | ) | | — |
| | (406 | ) | | (2,272 | ) |
International | — |
| | (61 | ) | | — |
| | (1,300 | ) | | (1,361 | ) |
Recoveries | — |
| | 410 |
| | — |
| | 215 |
| | 625 |
|
Balances at end of the period | $ | 21,900 |
| | $ | 25,824 |
| | $ | 60 |
| | $ | 9,620 |
| | $ | 57,404 |
|
|
| | | | | | | | | | | | | | | | | | | |
| June 30, 2019 |
(in thousands) | Real Estate | | Commercial | | Financial Institutions | | Consumer and Others | | Total |
Allowance for loan losses by impairment methodology | | | | | | | | | |
Individually evaluated | $ | 527 |
| | $ | 2,608 |
| | $ | — |
| | $ | 1,390 |
| | $ | 4,525 |
|
Collectively evaluated | 21,373 |
| | 23,216 |
| | 60 |
| | 8,230 |
| | 52,879 |
|
| $ | 21,900 |
| | $ | 25,824 |
| | $ | 60 |
| | $ | 9,620 |
| | $ | 57,404 |
|
Investment in loans, net of unearned income | | | | | | | | | |
Individually evaluated | $ | 2,621 |
| | $ | 19,298 |
| | $ | — |
| | $ | 6,633 |
| | $ | 28,552 |
|
Collectively evaluated | 3,123,437 |
| | 2,104,143 |
| | 25,006 |
| | 531,617 |
| | 5,784,203 |
|
| $ | 3,126,058 |
| | $ | 2,123,441 |
| | $ | 25,006 |
| | $ | 538,250 |
| | $ | 5,812,755 |
|
Amerant Bancorp Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
|
| | | | | | | | | | | | | | | | | | | |
| June 30, 2019 |
(in thousands) | Real Estate | | Commercial | | Financial Institutions | | Consumer and Others | | Total |
Allowance for loan losses by impairment methodology | | | | | | | | | |
Individually evaluated | $ | 527 |
| | $ | 2,608 |
| | $ | — |
| | $ | 1,390 |
| | $ | 4,525 |
|
Collectively evaluated | 21,373 |
| | 23,216 |
| | 60 |
| | 8,230 |
| | 52,879 |
|
| $ | 21,900 |
| | $ | 25,824 |
| | $ | 60 |
| | $ | 9,620 |
| | $ | 57,404 |
|
Investment in loans, net of unearned income | | | | | | | | | |
Individually evaluated | $ | 2,621 |
| | $ | 19,298 |
| | $ | — |
| | $ | 6,633 |
| | $ | 28,552 |
|
Collectively evaluated | 3,123,437 |
| | 2,104,143 |
| | 25,006 |
| | 531,617 |
| | 5,784,203 |
|
| $ | 3,126,058 |
| | $ | 2,123,441 |
| | $ | 25,006 |
| | $ | 538,250 |
| | $ | 5,812,755 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2018 |
(in thousands) | Real Estate | | Commercial | | Financial Institutions | | Consumer and Others | | Total |
Balances at beginning of the period | $ | 30,503 |
| | $ | 33,672 |
| | $ | 3,671 |
| | $ | 4,272 |
| | $ | 72,118 |
|
(Reversal of) provision for loan losses | (1,814 | ) | | (1,750 | ) | | (354 | ) | | 4,068 |
| | 150 |
|
Loans charged-off | | | | | | | | |
|
Domestic | — |
| | (2,355 | ) | | — |
| | (98 | ) | | (2,453 | ) |
International | — |
| | (52 | ) | | — |
| | (230 | ) | | (282 | ) |
Recoveries | 4 |
| | 269 |
| | — |
| | 125 |
| | 398 |
|
Balances at end of the period | $ | 28,693 |
| | $ | 29,784 |
| | $ | 3,317 |
| | $ | 8,137 |
| | $ | 69,931 |
|
|
| | | | | | | | | | | | | | |
| Six Months Ended June 30, 2018 |
(in thousands) | Real Estate | | Commercial | | Financial Institutions | | Consumer and Others | | Total |
Balances at beginning of the period | 31,290 |
| | 32,687 |
| | 4,362 |
| | 3,661 |
| | 72,000 |
|
(Reversal of) provision for loan losses | (2,635 | ) | | (1,215 | ) | | (1,045 | ) | | 5,045 |
| | 150 |
|
Loans charged-off | | | | | | | | | |
Domestic | — |
| | (2,737 | ) | | — |
| | (117 | ) | | (2,854 | ) |
International | — |
| | (52 | ) | | — |
| | (630 | ) | | (682 | ) |
Recoveries | 38 |
| | 1,101 |
| | — |
| | 178 |
| | 1,317 |
|
Balances at end of the period | 28,693 |
| | 29,784 |
| | 3,317 |
| | 8,137 |
| | 69,931 |
|
|
| | | | | | | | | | | | | | | | | | | |
| June 30, 2018 |
(in thousands) | Real Estate | | Commercial | | Financial Institutions | | Consumer and Others | | Total |
Allowance for loan losses by impairment methodology | | | | | | | | | |
Individually evaluated | $ | 4,055 |
| | $ | 2,252 |
| | $ | — |
| | $ | — |
| | $ | 6,307 |
|
Collectively evaluated | 24,638 |
| | 27,532 |
| | 3,317 |
| | 8,137 |
| | 63,624 |
|
| $ | 28,693 |
| | $ | 29,784 |
| | $ | 3,317 |
| | $ | 8,137 |
| | $ | 69,931 |
|
Investment in loans, net of unearned income | | | | | | | | | |
Individually evaluated | $ | 11,078 |
| | $ | 16,206 |
| | $ | — |
| | $ | 306 |
| | $ | 27,590 |
|
Collectively evaluated | 3,078,004 |
| | 2,184,226 |
| | 371,498 |
| | 558,231 |
| | 6,191,959 |
|
| $ | 3,089,082 |
| | $ | 2,200,432 |
| | $ | 371,498 |
| | $ | 558,537 |
| | $ | 6,219,549 |
|
Amerant Bancorp Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
The following is a summary of the recorded investment amount of loan sales by portfolio segment:
|
| | | | | | | | | | | | | | | | | | | |
Three Months Ended June 30, (in thousands) | Real Estate | | Commercial | | Financial Institutions | | Consumer and others | | Total |
2020 | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2,126 |
| | $ | 2,126 |
|
2019 | $ | — |
| | $ | 59,282 |
| | $ | — |
| | $ | 2,957 |
| | $ | 62,239 |
|
|
| | | | | | | | | | | | | | | | | | | |
Three Months Ended June 30, (in thousands) | Real Estate | | Commercial | | Financial Institutions | | Consumer and others | | Total |
2019 | $ | — |
| | $ | 59,282 |
| | $ | — |
| | $ | 2,957 |
| | $ | 62,239 |
|
2018 | $ | 5,049 |
| | $ | 5,774 |
| | $ | — |
| | $ | — |
| | $ | 10,823 |
|
|
| | | | | | | | | | | | | | | | | | | | |
Six Months Ended June 30, (in thousands) | Real Estate | | Commercial | | Financial Institutions | | Consumer and others | | Total |
2020 | $ | — |
| | $ | 11,901 |
| | $ | — |
| 1,864 |
| $ | 3,334 |
| | $ | 15,235 |
|
2019 | $ | 23,475 |
| | $ | 186,120 |
| | $ | — |
| 1,864,000 |
| $ | 4,821 |
| | $ | 214,416 |
|
|
| | | | | | | | | | | | | | | |
Six Months Ended June 30, (in thousands) | Real Estate | | Commercial | | Financial Institutions | | Consumer and others | | Total |
2019 | 23,475 |
| | 186,120 |
| | — |
| | 4,821 |
| | 214,416 |
|
2018 | 8,007 |
| | 15,774 |
| | — |
| 1,864 |
| — |
| | 23,781 |
|
The following is a summary of impaired loans as of June 30, 2019 and December 31, 2018 |
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2019 |
| Recorded Investment | | | | |
(in thousands) | With a Valuation Allowance | | Without a Valuation Allowance | | Total | | Year Average (1) | | Total Unpaid Principal Balance | | Valuation Allowance |
Real estate loans | | | | | | | | | | | |
Commercial real estate | | | | | | | | | | | |
Nonowner occupied | $ | 1,964 |
| | $ | — |
| | $ | 1,964 |
| | $ | 3,052 |
| | $ | 1,964 |
| | $ | 313 |
|
Multi-family residential | 657 |
| | — |
| | 657 |
| | 702 |
| | 657 |
| | 214 |
|
Land development and construction loans | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| 2,621 |
| | — |
| | 2,621 |
| | 3,754 |
| | 2,621 |
| | 527 |
|
Single-family residential | 6,377 |
| | 484 |
| | 6,861 |
| | 4,697 |
| | 6,950 |
| | 1,444 |
|
Owner occupied | 3,223 |
| | 6,427 |
| | 9,650 |
| | 5,980 |
| | 9,688 |
| | 1,056 |
|
| 12,221 |
| | 6,911 |
| | 19,132 |
| | 14,431 |
| | 19,259 |
| | 3,027 |
|
Commercial loans | 9,235 |
| | 92 |
| | 9,327 |
| | 6,987 |
| | 10,477 |
| | 1,448 |
|
Consumer loans and overdrafts | 84 |
| | 9 |
| | 93 |
| | 39 |
| | 90 |
| | 50 |
|
| $ | 21,540 |
| | $ | 7,012 |
| | $ | 28,552 |
| | $ | 21,457 |
| | $ | 29,826 |
| | $ | 4,525 |
|
Amerant Bancorp Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
The following is a summary of impaired loans as of June 30, 2020 and December 31, 2019: | | | December 31, 2018 | June 30, 2020 |
| Recorded Investment | | | | | Recorded Investment | | | | |
(in thousands) | With a Valuation Allowance | | Without a Valuation Allowance | | Total | | Year Average (1) | | Total Unpaid Principal Balance | | Valuation Allowance | With a Valuation Allowance | | Without a Valuation Allowance | | Total | | Year Average (1) | | Total Unpaid Principal Balance | | Valuation Allowance |
Real estate loans | | | | | | | | | | | | | | | | | | | | | | |
Commercial real estate | | | | | | | | | | | | | | | | | | | | | | |
Nonowner occupied | $ | — |
| | $ | — |
| | $ | — |
| | $ | 7,935 |
| | $ | — |
| | $ | — |
| |
Non-owner occupied | | $ | 8,426 |
| | $ | — |
| | $ | 8,426 |
| | $ | 3,559 |
| | $ | 8,434 |
| | $ | 2,565 |
|
Multi-family residential | — |
| | 717 |
| | 717 |
| | 724 |
| | 722 |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Land development and construction loans | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| — |
| | 717 |
| | 717 |
| | 8,659 |
| | 722 |
| | — |
| 8,426 |
| | — |
| | 8,426 |
| | 3,559 |
| | 8,434 |
| | 2,565 |
|
Single-family residential | 3,086 |
| | 306 |
| | 3,392 |
| | 4,046 |
| | 3,427 |
| | 1,235 |
| 5,596 |
| | 2,645 |
| | 8,241 |
| | 6,816 |
| | 8,381 |
| | 1,469 |
|
Owner occupied | 169 |
| | 4,427 |
| | 4,596 |
| | 5,524 |
| | 4,601 |
| | 75 |
| 1,525 |
| | 10,350 |
| | 11,875 |
| | 12,413 |
| | 11,716 |
| | 522 |
|
| 3,255 |
| | 5,450 |
| | 8,705 |
| | 18,229 |
| | 8,750 |
| | 1,310 |
| 15,547 |
| | 12,995 |
| | 28,542 |
| | 22,788 |
| | 28,531 |
| | 4,556 |
|
Commercial loans | 4,585 |
| | 148 |
| | 4,733 |
| | 7,464 |
| | 6,009 |
| | 1,059 |
| 47,088 |
| | 1,849 |
| | 48,937 |
| | 19,130 |
| | 51,617 |
| | 23,118 |
|
Consumer loans and overdrafts | 9 |
| | 11 |
| | 20 |
| | 15 |
| | 17 |
| | 4 |
| 61 |
| | 9 |
| | 70 |
| | 264 |
| | 63 |
| | 30 |
|
| $ | 7,849 |
| | $ | 5,609 |
| | $ | 13,458 |
| | $ | 25,708 |
| | $ | 14,776 |
| | $ | 2,373 |
| $ | 62,696 |
| | $ | 14,853 |
| | $ | 77,549 |
| | $ | 42,182 |
| | $ | 80,211 |
| | $ | 27,704 |
|
_______________
| |
(1) | Average using trailing four quarter balances. |
The Company recognized interest income on impaired loans |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 |
| Recorded Investment | | | | |
(in thousands) | With a Valuation Allowance | | Without a Valuation Allowance | | Total | | Year Average (1) | | Total Unpaid Principal Balance | | Valuation Allowance |
Real estate loans | | | | | | | | | | | |
Commercial real estate | | | | | | | | | | | |
Non-owner occupied | $ | 1,936 |
| | $ | — |
| | $ | 1,936 |
| | $ | 1,459 |
| | $ | 1,936 |
| | $ | 1,161 |
|
Multi-family residential | — |
| | — |
| | — |
| | 342 |
| | — |
| | — |
|
Land development and construction loans | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| 1,936 |
| | — |
| | 1,936 |
| | 1,801 |
| | 1,936 |
| | 1,161 |
|
Single-family residential | 4,739 |
| | 729 |
| | 5,468 |
| | 5,564 |
| | 5,598 |
| | 946 |
|
Owner occupied | 6,169 |
| | 7,906 |
| | 14,075 |
| | 9,548 |
| | 13,974 |
| | 501 |
|
| 12,844 |
| | 8,635 |
| | 21,479 |
| | 16,913 |
| | 21,508 |
| | 2,608 |
|
Commercial loans | 8,415 |
| | 13 |
| | 8,428 |
| | 8,552 |
| | 8,476 |
| | 1,288 |
|
Consumer loans and overdrafts | 395 |
| | 9 |
| | 404 |
| | 153 |
| | 402 |
| | 378 |
|
| $ | 21,654 |
| | $ | 8,657 |
| | $ | 30,311 |
| | $ | 25,618 |
| | $ | 30,386 |
| | $ | 4,274 |
|
_______________
| |
(1) | Average using trailing four quarter balances. |
Amerant Bancorp Inc. and $83 thousand during the three months ended June 30, 2019 and 2018, respectively, and $32 thousand and $108 thousand during the six months ended June 30, 2019 and 2018, respectively.Subsidiaries
During the six months ended June 30, 2019,Notes to Interim Consolidated Financial Statements (Unaudited)
There were no new loan modifications considered troubled debt restructurings (“TDRs”) consisted of one single-family residential loan with a recorded investment of $202 thousand asduring the three and six months periods ended June 30, 2020. As of June 30, 2019. During the six months ended June 30, 2019, the Company had no charge-offs against the allowance for loan losses as a result2020, TDRs mainly consist of TDR loans. Since June 30, 2018, no TDRs subsequently defaulted under the modified terms of the loan agreement.
On July 30, 2019, the Company agreed to restructure certain CRE, owner occupied and commercial loans totaling $9.4 million in a multiple loan relationship with a South Florida customer.customer including CRE, owner occupied and commercial loans totaling $7.3 million. This TDR restructure consisted of extending repayment terms and adjusting future periodic payments and the Company determinedwhich resulted in no additional impairment charges were necessary. Fourreserves at the time of its modification. NaN residential loans, totaling $2.2$2.1 million at June 30, 2020, which are included in this loan relationship, were not modified. The Company believes the specific reserves associated with these CRE, owner occupied, commercial loans, and residential loans,this loan relationship, which total a $11.6$1.4 million impaired loan relationship as ofat June 30, 2019,2020, are adequate to cover probable losses given current facts and circumstances. In the fourth quarter of 2019, this $7.3 million TDR loan relationship did not perform in accordance with the restructured terms. The Company will continuecontinues to closely monitor the performance of these loans under their modified terms. Since June 30, 2019, 0 additional TDRs subsequently defaulted under their modified terms. In addition, during the first half of 2020, the company charged off $1.9 million against the allowance for loan losses associated with TDR loans.
On March 26, 2020, the Company began offering loan payment relief options to customers impacted by the COVID-19 pandemic, including interest-only and/or forbearance options. These programs continued in the second quarter of 2020. Consistent with accounting and regulatory guidance, temporary modifications granted under these programs are not considered TDRs. Loans which have been modified under these programs totaled $1.1 billion as of June 30, 2020. As of this date, loans in these programs on which the interest-only and/or forbearance period expired totaled $504.7 million, or 45.4% of total modified loans. The Company collected payments due on $8.4 million of modified loans through June 30, 2020. Modified loans totaling $496.3 million are due by July 31, 2020.
Amerant Bancorp Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
Loans by Credit Risk Quality Indicators
The Company’s investment in loansLoans by credit quality indicators as of June 30, 20192020 and December 31, 20182019 are summarized in the following tables:
| | | June 30, 2019 | June 30, 2020 |
| Credit Risk Rating | | | Credit Risk Rating | | |
| Nonclassified
| | Classified | | | Nonclassified
| | Classified | | |
(in thousands) | Pass | | Special Mention | | Substandard | | Doubtful | | Loss | | Total | Pass | | Special Mention | | Substandard | | Doubtful | | Loss | | Total |
Real estate loans | | | | | | | | | | | | | | | | | | | | | | |
Commercial real estate | | | | | | | | | | | | | | | | | | | | | | |
Nonowner occupied | $ | 1,864,278 |
| | $ | 6,251 |
| | $ | 1,964 |
| | $ | — |
| | $ | — |
| | $ | 1,872,493 |
| |
Non-owner occupied | | $ | 1,829,770 |
| | $ | 2,127 |
| | $ | 7,242 |
| | $ | 1,936 |
| | $ | — |
| | $ | 1,841,075 |
|
Multi-family residential | 967,423 |
| |
|
| | 657 |
| | — |
| | — |
| | 968,080 |
| 823,450 |
| | — |
| | — |
| | — |
| | — |
| | 823,450 |
|
Land development and construction loans | 291,304 |
| | — |
| | — |
| | — |
| | — |
| | 291,304 |
| 277,570 |
| | 7,196 |
| | — |
| | — |
| | — |
| | 284,766 |
|
| 3,123,005 |
| | 6,251 |
| | 2,621 |
| | — |
| | — |
| | 3,131,877 |
| 2,930,790 |
| | 9,323 |
| | 7,242 |
| | 1,936 |
| | — |
| | 2,949,291 |
|
Single-family residential | 526,131 |
| | — |
| | 9,432 |
| | — |
| | — |
| | 535,563 |
| 581,586 |
| | — |
| | 8,127 |
| | — |
| | — |
| | 589,713 |
|
Owner occupied | 812,918 |
| | 9,476 |
| | 13,940 |
| | — |
| | — |
| | 836,334 |
| 916,485 |
| | 7,884 |
| | 14,142 |
| | — |
| | — |
| | 938,511 |
|
| 4,462,054 |
| | 15,727 |
| | 25,993 |
| | — |
| | — |
| | 4,503,774 |
| 4,428,861 |
| | 17,207 |
| | 29,511 |
| | 1,936 |
| | — |
| | 4,477,515 |
|
Commercial loans | 1,163,375 |
| | 5,332 |
| | 11,490 |
| | 539 |
| | — |
| | 1,180,736 |
| 1,185,758 |
| | 5,664 |
| | 35,211 |
| | 20,822 |
| | — |
| | 1,247,455 |
|
Loans to financial institutions and acceptances | 25,006 |
| | — |
| | — |
| | — |
| | — |
| | 25,006 |
| 16,597 |
| | — |
| | — |
| | — |
| | — |
| | 16,597 |
|
Consumer loans and overdrafts | 98,818 |
| | — |
| | 4,421 |
| | — |
| | — |
| | 103,239 |
| 130,623 |
| | — |
| | 81 |
| | — |
| | — |
| | 130,704 |
|
| $ | 5,749,253 |
| | $ | 21,059 |
| | $ | 41,904 |
| | $ | 539 |
| | $ | — |
| | $ | 5,812,755 |
| $ | 5,761,839 |
| | $ | 22,871 |
| | $ | 64,803 |
| | $ | 22,758 |
| | $ | — |
| | $ | 5,872,271 |
|
Amerant Bancorp Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 |
| Credit Risk Rating | | |
| Nonclassified
| | Classified | | |
(in thousands) | Pass | | Special Mention | | Substandard | | Doubtful | | Loss | | Total |
Real estate loans | | | | | | | | | | | |
Commercial real estate | | | | | | | | | | | |
Non-owner occupied | $ | 1,879,780 |
| | $ | 9,324 |
| | $ | 762 |
| | $ | 1,936 |
| | $ | — |
| | $ | 1,891,802 |
|
Multi-family residential | 801,626 |
| | — |
| | — |
| | — |
| | — |
| | 801,626 |
|
Land development and construction loans | 268,733 |
| | 9,955 |
| | — |
| | — |
| | — |
| | 278,688 |
|
| 2,950,139 |
| | 19,279 |
| | 762 |
| | 1,936 |
| | — |
| | 2,972,116 |
|
Single-family residential | 531,811 |
| | — |
| | 7,291 |
| | — |
| | — |
| | 539,102 |
|
Owner occupied | 871,682 |
| | 8,138 |
| | 14,240 |
| | — |
| | — |
| | 894,060 |
|
| 4,353,632 |
| | 27,417 |
| | 22,293 |
| | 1,936 |
| | — |
| | 4,405,278 |
|
Commercial loans | 1,217,399 |
| | 5,569 |
| | 8,406 |
| | 2,669 |
| | — |
| | 1,234,043 |
|
Loans to financial institutions and acceptances | 16,552 |
| | — |
| | — |
| | — |
| | — |
| | 16,552 |
|
Consumer loans and overdrafts | 88,042 |
| | — |
| | 67 |
| | 357 |
| | — |
| | 88,466 |
|
| $ | 5,675,625 |
| | $ | 32,986 |
| | $ | 30,766 |
| | $ | 4,962 |
| | $ | — |
| | $ | 5,744,339 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2018 |
| Credit Risk Rating | | |
| Nonclassified
| | Classified | | |
(in thousands) | Pass | | Special Mention | | Substandard | | Doubtful | | Loss | | Total |
Real estate loans | | | | | | | | | | | |
Commercial real estate | | | | | | | | | | | |
Nonowner occupied | $ | 1,802,573 |
| | $ | 6,561 |
| | $ | 222 |
| | $ | — |
| | $ | — |
| | $ | 1,809,356 |
|
Multi-family residential | 909,439 |
| | — |
| | — |
| | — |
| | — |
| | 909,439 |
|
Land development and construction loans | 326,644 |
| | — |
| | — |
| | — |
| | — |
| | 326,644 |
|
| 3,038,656 |
| | 6,561 |
| | 222 |
| | — |
| | — |
| | 3,045,439 |
|
Single-family residential | 526,373 |
| | — |
| | 7,108 |
| | — |
| | — |
| | 533,481 |
|
Owner occupied | 758,552 |
| | 9,019 |
| | 9,451 |
| | — |
| | — |
| | 777,022 |
|
| 4,323,581 |
| | 15,580 |
| | 16,781 |
| | — |
| | — |
| | 4,355,942 |
|
Commercial loans | 1,369,434 |
| | 3,943 |
| | 6,462 |
| | 589 |
| | — |
| | 1,380,428 |
|
Loans to financial institutions and acceptances | 68,965 |
| | — |
| | — |
| | — |
| | — |
| | 68,965 |
|
Consumer loans and overdrafts | 108,778 |
| | — |
| | 6,062 |
| | — |
| | — |
| | 114,840 |
|
| $ | 5,870,758 |
| | $ | 19,523 |
| | $ | 29,305 |
| | $ | 589 |
| | $ | — |
| | $ | 5,920,175 |
|
Time deposits in denominations of $100,000 or more amounted to approximately $1.5 billion and $1.4 billion at June 30, 20192020 and December 31, 2018.2019, respectively. Time deposits in denominations of more than $250,000 or more amounted to approximately $740$784 million and $718$733 million at June 30, 20192020 and December 31, 2018,2019, respectively. As of June 30, 20192020 and December 31, 2018,2019, brokered time deposits amounted to $619$588 million and $642$662 million, respectively.
| |
6.7. | Advances from the Federal Home Loan Bank and Other Borrowings |
TheAt June 30, 2020 and December 31, 2019, the Company had outstanding advances from the FHLB and other borrowings. These borrowings bear fixed interest rates or variable rates based on 3-month LIBOR as follows:
| | | | | | | | | | Outstanding Balance |
Year of Maturity | Interest Rate | | June 30, 2019 | | December 31, 2018 | | Interest Rate | | Interest Rate Type | | At June 30, 2020 | | At December 31, 2019 |
(in thousands, except percentages) | | | | | |
2019 | 1.80% to 3.86% | | $ | 350,000 |
| | $ | 440,000 |
| |
| | | (in thousands) |
2020 | | | 0.44% to 2.35% | | Fixed | | — |
| | 135,000 |
|
2020 | 1.50% to 2.74% | | 325,000 |
| | 306,000 |
| | 1.73% to 2.03% | | Variable | | — |
| | 150,000 |
|
2021 | 1.93% to 3.08% | | 240,000 |
| | 210,000 |
| | 1.75% to 3.08% | | Fixed | | — |
| | 210,000 |
|
2022 | 2.48% to 2.80% | | 120,000 |
| | 120,000 |
| | 0.65% to 2.80% | | Fixed | | 50,000 |
| | 120,000 |
|
2023 and after | 2.95% to 3.23% | | 90,000 |
| | 90,000 |
| |
2023 and after (1) | | | 0.62% to 3.23% | | Fixed | | 1,000,000 |
| | 620,000 |
|
| | $ | 1,125,000 |
| | $ | 1,166,000 |
| | $ | 1,050,000 |
| | $ | 1,235,000 |
|
Amerant Bancorp Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
_______________
| |
7.(1) | Derivative InstrumentsAs of June 30, 2020 and December 31, 2019, includes $530 million (fixed interest rates raging from 0.62% to 0.97%) in advances from the FHLB that are callable prior to maturity. |
At
In early April 2020, the Company restructured $420.0 million of its fixed-rate FHLB advances extending their original maturities from 2021 to 2023 at lower interest rates. The Company incurred a loss of $17.0 million as a result of this restructuring which was blended into the new interest rates of these advances affecting the yields through their remaining maturities. The Company accounted for these transactions as the modification of existing debt in accordance with U.S. GAAP.
8.Senior Notes
On June 23, 2020, the Company completed a $60.0 million offering of senior notes with a coupon rate of 5.75% and due 2025 (the “Senior Notes”). The net proceeds, after direct issuance costs of $1.6 million, totaled $58.4 million. The Senior Notes are presented net of direct issuance costs in the consolidated financial statements. These costs have been deferred and are being amortized over the term of the Senior Notes of 5 years as an adjustment to yield. These Senior Notes are unsecured and unsubordinated, rank equally with all of our existing and future unsecured and unsubordinated indebtedness, and are fully and unconditionally guaranteed by our wholly-owned intermediate holding company subsidiary Amerant Florida Bancorp.
9. Junior Subordinated Debentures Held by Trust Subsidiaries
The following table provides information on the outstanding Trust Preferred Securities issued by, and the junior subordinated debentures issued to, each of the statutory trust subsidiaries as of June 30, 20192020 and December 31, 2018, the fair values of the Company’s derivative instruments were as follows:2019:
|
| | | | | | | | | | | | | | | | | | | | | |
| June 30, 2020 | | December 31, 2019 | | | | | | |
(in thousands) | Amount of Trust Preferred Securities Issued by Trust | | Principal Amount of Debenture Issued to Trust | | Amount of Trust Preferred Securities Issued by Trust | | Principal Amount of Debenture Issued to Trust | | Year of Issuance | | Annual Rate of Trust Preferred Securities and Debentures | | Year of Maturity |
Commercebank Capital Trust I | $ | — |
| | $ | — |
| | $ | 26,830 |
| | $ | 28,068 |
| | 1998 | | 8.90% | | 2028 |
Commercebank Capital Trust VI | 9,250 |
| | 9,537 |
| | 9,250 |
| | 9,537 |
| | 2002 | | 3-M LIBOR + 3.35% | | 2033 |
Commercebank Capital Trust VII | 8,000 |
| | 8,248 |
| | 8,000 |
| | 8,248 |
| | 2003 | | 3-M LIBOR + 3.25% | | 2033 |
Commercebank Capital Trust VIII | 5,000 |
| | 5,155 |
| | 5,000 |
| | 5,155 |
| | 2004 | | 3-M LIBOR + 2.85% | | 2034 |
Commercebank Capital Trust IX | 25,000 |
| | 25,774 |
| | 25,000 |
| | 25,774 |
| | 2006 | | 3-M LIBOR + 1.75% | | 2038 |
Commercebank Capital Trust X | 15,000 |
| | 15,464 |
| | 15,000 |
| | 15,464 |
| | 2006 | | 3-M LIBOR + 1.78% | | 2036 |
| $ | 62,250 |
| | $ | 64,178 |
| | $ | 89,080 |
| | $ | 92,246 |
| | | | | | |
|
| | | | | | | | | | | | | | | |
| June 30, 2019 | | December 31, 2018 |
(in thousands) | Other Assets | | Other Liabilities | | Other Assets | | Other Liabilities |
Interest rate swaps designated as cash flow hedges | $ | — |
| | $ | — |
| | $ | 9,386 |
| | $ | 283 |
|
Interest rate swaps not designated as hedging instruments: | | | | | | | |
Customers | 10,226 |
| | — |
| | 1,420 |
| | — |
|
Third party broker | — |
| | 10,226 |
| | — |
| | 1,420 |
|
| 10,226 |
| | 10,226 |
| | 1,420 |
| | 1,420 |
|
Interest rate caps not designated as hedging instruments: | | | | | | | |
Customers | — |
| | 78 |
| | — |
| | 685 |
|
Third party broker | 78 |
| | — |
| | 685 |
| | — |
|
| 78 |
| | 78 |
| | 685 |
| | 685 |
|
| $ | 10,304 |
| | $ | 10,304 |
| | $ | 11,491 |
| | $ | 2,388 |
|
Derivatives Designated as Hedging Instruments
At December 31, 2018,On January 30, 2020, the Company had 16 interest rate swap contracts with total notional amountsredeemed all $26.8 million of $280 million, that were designated as cash flow hedgesits outstanding 8.90% trust preferred capital securities issued by Commercebank Capital Trust I (“Capital Trust I”) at a redemption price of floating rate interest payments on the outstanding and expected rollover of variable-rate advances from the FHLB. These hedge relationships were expected to be highly effective in offsetting the effects of changes in interest rates in the cash flows associated with the advances from the FHLB. No hedge ineffectiveness gains or losses were recognized in the six months ended June 30, 2019 and 2018.
In February and March 2019, the Company terminated these 16 interest rate swaps designated as cash flow hedges.100%. The Company will recognize the contracts’ cumulative net unrealized gains of $8.9 million in earnings over the remaining original life of the terminated interest rate swaps of between six months and seven years.
On August 8, 2019, the Company entered into five interest rate swap contracts with notional amounts totaling $64.2 million that were designated as cash flow hedges to manage exposure of floating rate interest payments onsimultaneously redeemed all of the Company’s outstanding variable-rate junior subordinated debentures with carrying amounts at June 30, 2019 totaling $64.2 million. These interest rate swap contracts mature in approximately three years. The Company expects these interest rates swaps to be highly effective in offsetting the effectsheld by Capital Trust I as part of changes in interest rates onthis redemption transaction. This redemption reduced total cash flows associated with the Company’s variable-rate junior subordinated debentures.and cash equivalents by $27.1 million, financial liabilities by
The Company’s interest rate swaps designated as cash flow hedges involve the Company’s payment of fixed-rate amounts in exchange for the Company receiving variable-rate payments over the life of the agreements without exchange of the underlying notional amount.
Derivatives Not Designated as Hedging Instruments
At June 30, 2019 and December 31, 2018, the Company had 22 and eight interest rate swap contracts with customers, respectively, with a total notional amount of $199.1 million and $80.4 million, respectively. These instruments involve the payment of fixed-rate amounts in exchange for the Company receiving variable-rate payments over the life of the contract. In addition, at June 30, 2019 and December 31, 2018, the Company had interest rate swap mirror contracts with a third party broker with similar terms.
Amerant Bancorp Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
$28.1 million, other assets by $3.4 million, and other liabilities by $2.2 million during the three months ended March 31, 2020. In addition, the Company recorded a charge of $0.3 million during the same period for the unamortized issuance costs. This redemption reduced the Company’s Tier 1 equity capital by a net amount of $24.7 million.
Amerant Bancorp Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
| |
10. | Derivative Instruments |
At June 30, 2020 and December 31, 2019, the fair values of the Company’s derivative instruments were as follows:
|
| | | | | | | | | | | | | | | |
| June 30, 2020 | | December 31, 2019 |
(in thousands) | Other Assets | | Other Liabilities | | Other Assets | | Other Liabilities |
Interest rate swaps designated as cash flow hedges | $ | 79 |
| | $ | 2,005 |
| | $ | 301 |
| | $ | — |
|
Interest rate swaps not designated as hedging instruments: | | | | | | | |
Customers | 47,116 |
| | — |
| | 11,236 |
| | 527 |
|
Third party broker | — |
| | 47,116 |
| | 527 |
| | 11,236 |
|
| 47,116 |
| | 47,116 |
| | 11,763 |
| | 11,763 |
|
Interest rate caps not designated as hedging instruments: | | | | | | | |
Customers | — |
| | 57 |
| | — |
| | 46 |
|
Third party broker | 16 |
| | — |
| | 33 |
| | — |
|
| 16 |
| | 57 |
| | 33 |
| | 46 |
|
| $ | 47,211 |
| | $ | 49,178 |
| | $ | 12,097 |
| | $ | 11,809 |
|
NaN hedge ineffectiveness gains or losses were recognized on derivatives designated as hedging instruments in the three and six month periods ended June 30, 2020 and 2019.
Derivatives Not Designated as Hedging Instruments
Interest Rate Swaps
At eachJune 30, 2020 and December 31, 2019, the Company had 67 and 49 interest rate swap contracts with customers, respectively, with a total notional amount of $456.9 million and $405.2 million, respectively. These instruments involve the payment of variable-rate amounts in exchange for the Company receiving fixed-rate amounts over the life of the contract. In addition, at June 30, 2020 and December 31, 2019, the Company had 67 and 49 interest rate swap mirror contracts, respectively, with third party brokers with similar terms.
In 2019, the Company entered into swap participation agreements with other financial institutions to manage the credit risk exposure on certain interest rate swaps with customers. Under these agreements, the Company, as the beneficiary or guarantor, will receive or make payments from/to the counterparty if the borrower defaults on the related interest rate swap contract. As of June 30, 20192020 and December 31, 2018,2019, the Company had 2 and 3 swap participation agreements, respectively, with total notional amounts of approximately $32.0 million and $50.2 million, respectively. The notional amount of these agreements is based on the Company’s pro-rata share of the related interest rate swap contracts. As of June 30, 2020 and December 31, 2019, the fair value of swap participation agreements was not significant.
Amerant Bancorp Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
Interest Rate Caps
At June 30, 2020 and December 31, 2019, the Company had 18 and 16 interest rate cap contracts with customers with a total notional amount of $302.8$360.5 million and $323.7$315.2 million, respectively. These instruments involve the Company making payments if an interest rate exceeds the agreed strike price. In addition, at June 30, 20192020 and December 31, 2018,2019, the Company had 11 and 13 interest rate cap mirror contracts, respectively, with various third party brokers with similar terms.total notional amounts of $184.4 million and $234.1 million, respectively.
| |
8.11. | Stock-based Incentive Compensation Plan |
The Company sponsors the 2018 Equity and Incentive Compensation Plan (the “2018 Equity Plan”). See Note 11 to the Company’s audited consolidated financial statements in the 2019 annual report on Form 10-K for more information on the 2018 Equity Plan and restricted stockstock-based compensation awards for the year ended 2018. 2019, including restricted stocks and restricted stock units (“RSUs”).
Restricted Stock Awards
The 2018 Equity Plan was renamed as of August 8, 2019 to reflectfollowing table shows the change of the Company’s name to Amerant Bancorp Inc. on June 5, 2019.
On January 22, 2019, the Company granted an additional 1,299 sharesactivity of restricted stock to an employee who was not included inawards during the December 21, 2018 restricted stock award. These shares of restricted stock will vest in three approximately equal amounts on each of January 21, 2020, 2021 and 2022. The fair value of the restricted stock granted was based on the market price of the shares of the Company’s Class A common stock at the grant date which was $13.58 per share.
During the three and six month periodsmonths ended June 30, 2019, the2020:
|
| | | | | |
| Number of restricted shares | Weighted-average grant date fair value |
Non-vested shares, beginning of year | 495,131 |
| $ | 13.48 |
|
Granted | 6,591 |
| 15.17 |
|
Vested | (433 | ) | 13.58 |
|
Forfeited | (64,281 | ) | 13.45 |
|
Non-vested shares at June 30, 2020 | 437,008 |
| $ | 13.51 |
|
The Company recorded $1.5 million and $3.0 million, respectively, of compensation expense related to the restricted stock awards granted in December 2018of $0.6 million and January 2019. The$1.5 million during the three months ended June 30, 2020 and 2019, respectively, and $1.0 million and $3.0 million during the six months ended June 30, 2020 and 2019, respectively.The total unamortized deferred compensation expense of $6.8$2.1 million for all unvested restricted stock outstanding at June 30, 20192020 will be recognized over a weighted average period of 1.61.2 years.
Restricted Stock Units
The following table shows the activity of RSUs during the six months ended June 30, 2020:
Amerant Bancorp Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
|
| | | | | | | | | | | | | | | | | | | |
| Stock-settled RSUs | | Cash-settled RSUs | Total RSUs |
| Number of RSUs | | Weighted-average grant date fair value | | Number of RSUs | | Weighted-average grant date fair value | Number of RSUs | | Weighted-average grant date fair value |
Nonvested, beginning of year | 35,489 |
| | $ | 13.91 |
| | 19,230 |
| | $ | 13.45 |
| 54,719 |
| | $ | 13.75 |
|
Granted | 22,302 |
| | 13.45 |
| | 11,151 |
| | 13.45 |
| 33,453 |
| | 13.45 |
|
Vested | (3,439 | ) | | 18.17 |
| | — |
| | — |
| (3,439 | ) | | 18.17 |
|
Forfeited | — |
| | — |
| | — |
| | — |
| — |
| | — |
|
Non-vested, end of year | 54,352 |
| | $ | 13.45 |
| | 30,381 |
| | $ | 13.45 |
| 84,733 |
| | $ | 13.45 |
|
`The Company recorded compensation expense related to RSUs of $0.1 million and $0.2 million during the the three and six months ended June 30, 2020, respectively. The total unamortized deferred compensation expense of $0.4 million for all unvested stock-settled RSUs outstanding at June 30, 2020 will be recognized over a weighted average period of 1.0 year.
The Company uses an estimated annual effective tax rate method in computing its interim tax provision. This effective tax rate is based on forecastforecasted annual consolidated pre-tax income, permanent tax differences and statutory tax rates. Under this method, the tax effect of certain items that do not meet the definition of ordinary income or expense are computed and recognized as discrete items when they occur.
The effective combined federal and state tax rates for the six months ended June 30, 2020 and 2019 were 20.75% and 2018 were 21.50% and 26.80%, respectively. Effective tax rates differ from the statutory rates mainly due to the impact of forecastforecasted permanent non-taxable interest and other income, and the impact of permanent non-deductible discrete expense items incurred during the period, which primarily include the non-deductible spin-off costs in 2018 and the effect of corporate state taxes.
10.Amerant Bancorp Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
13. Accumulated Other Comprehensive Income (Loss) (“AOCI/AOCL”AOCI”):
The components of AOCI/AOCLAOCI are summarized as follows using applicable blended average federal and state tax rates for each period:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2020 | | December 31, 2019 |
(in thousands) | Before Tax Amount | | Tax Effect | | Net of Tax Amount | | Before Tax Amount | | Tax Effect | | Net of Tax Amount |
Net unrealized holding gains on debt securities available for sale | $ | 40,935 |
| | $ | (10,007 | ) | | $ | 30,928 |
| | $ | 9,563 |
| | $ | (2,338 | ) | | $ | 7,225 |
|
Net unrealized holding gains on interest rate swaps designated as cash flow hedges | 5,029 |
| | (1,230 | ) | | 3,799 |
| | 7,953 |
| | (1,944 | ) | | $ | 6,009 |
|
Total AOCI | $ | 45,964 |
| | $ | (11,237 | ) | | $ | 34,727 |
| | $ | 17,516 |
| | $ | (4,282 | ) | | $ | 13,234 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2019 | | December 31, 2018 |
(in thousands) | Before Tax Amount | | Tax Effect | | Net of Tax Amount | | Before Tax Amount | | Tax Effect | | Net of Tax Amount |
Net unrealized holding gains (losses) on securities available for sale | $ | 6,350 |
| | $ | (1,552 | ) | | $ | 4,798 |
| | $ | (33,145 | ) | | $ | 8,104 |
| | $ | (25,041 | ) |
Net unrealized holding gains on interest rate swaps designated as cash flow hedges | 8,393 |
| | (2,052 | ) | | 6,341 |
| | 9,103 |
| | (2,226 | ) | | $ | 6,877 |
|
Total AOCI (AOCL) | $ | 14,743 |
| | $ | (3,604 | ) | | $ | 11,139 |
| | $ | (24,042 | ) | | $ | 5,878 |
| | $ | (18,164 | ) |
The components of other comprehensive income for the periods presented is summarized as follows:
25 |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2020 | | 2019 |
(in thousands) | Before Tax Amount | | Tax Effect | | Net of Tax Amount | | Before Tax Amount | | Tax Effect | | Net of Tax Amount |
Net unrealized holding gains on debt securities available for sale: | | | | | | | | | | | |
Change in fair value arising during the period | $ | 12,390 |
| | $ | (3,029 | ) | | $ | 9,361 |
| | $ | 18,946 |
| | $ | (4,633 | ) | | $ | 14,313 |
|
Reclassification adjustment for net gains included in net income | (7,117 | ) | | 1,740 |
| | (5,377 | ) | | (992 | ) | | 243 |
| | (749 | ) |
| 5,273 |
| | (1,289 | ) | | 3,984 |
| | 17,954 |
| | (4,390 | ) | | 13,564 |
|
Net unrealized holding losses on interest rate swaps designated as cash flow hedges: | | | | | | | | | | | |
Change in fair value arising during the period | (211 | ) | | 51 |
| | (160 | ) | | — |
| | — |
| | — |
|
Reclassification adjustment for net interest income included in net income | (283 | ) | | 69 |
| | (214 | ) | | (366 | ) | | 90 |
| | (276 | ) |
| (494 | ) | | 120 |
| | (374 | ) | | (366 | ) | | 90 |
| | (276 | ) |
Total other comprehensive income | $ | 4,779 |
| | $ | (1,169 | ) | | $ | 3,610 |
| | $ | 17,588 |
| | $ | (4,300 | ) | | $ | 13,288 |
|
Amerant Bancorp Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
The components of other comprehensive income (loss) for the periods presented is summarized as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2020 | | 2019 |
(in thousands) | Before Tax Amount | | Tax Effect | | Net of Tax Amount | | Before Tax Amount | | Tax Effect | | Net of Tax Amount |
Net unrealized holding gains on debt securities available for sale: | | | | | | | | | | | |
Change in fair value arising during the period | $ | 47,732 |
| | $ | (11,669 | ) | | $ | 36,063 |
| | $ | 40,491 |
| | $ | (9,900 | ) | | $ | 30,591 |
|
Reclassification adjustment for net gains included in net income | (16,360 | ) | | 4,000 |
| | (12,360 | ) | | (996 | ) | | 244 |
| | (752 | ) |
| 31,372 |
| | (7,669 | ) | | 23,703 |
| | 39,495 |
| | (9,656 | ) | | 29,839 |
|
Net unrealized holding losses on interest rate swaps designated as cash flow hedges: | | | | | | | | | | | |
Change in fair value arising during the period | (2,215 | ) | | 541 |
| | (1,674 | ) | | (15 | ) | | 4 |
| | (11 | ) |
Reclassification adjustment for net interest income included in net income | (709 | ) | | 173 |
| | (536 | ) | | (695 | ) | | 170 |
| | (525 | ) |
| (2,924 | ) | | 714 |
| | (2,210 | ) | | (710 | ) | | 174 |
| | (536 | ) |
Total other comprehensive income | $ | 28,448 |
| | $ | (6,955 | ) | | $ | 21,493 |
| | $ | 38,785 |
| | $ | (9,482 | ) | | $ | 29,303 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2019 | | 2018 |
(in thousands) | Before Tax Amount | | Tax Effect | | Net of Tax Amount | | Before Tax Amount | | Tax Effect | | Net of Tax Amount |
Net unrealized holding gains (losses) on securities available for sale: | | | | | | | | | | | |
Change in fair value arising during the period | $ | 18,946 |
| | $ | (4,633 | ) | | $ | 14,313 |
| | $ | (6,716 | ) | | $ | 1,262 |
| | $ | (5,454 | ) |
Reclassification adjustment for net gains included in net income | (992 | ) | | 243 |
| | (749 | ) | | (16 | ) | | 4 |
| | (12 | ) |
| 17,954 |
| | (4,390 | ) | | 13,564 |
| | (6,732 | ) | | 1,266 |
| | (5,466 | ) |
Net unrealized holding gains on interest rate swaps designated as cash flow hedges: | | | | | | | | | | | |
Change in fair value arising during the period | — |
| | — |
| | — |
| | 2,574 |
| | (435 | ) | | 2,139 |
|
Reclassification adjustment for net interest (income) expense included in net income | (366 | ) | | 90 |
| | (276 | ) | | 19 |
| | (5 | ) | | 14 |
|
| (366 | ) | | 90 |
| | (276 | ) | | 2,593 |
| | (440 | ) | | 2,153 |
|
Total other comprehensive income (loss) | $ | 17,588 |
| | $ | (4,300 | ) | | $ | 13,288 |
| | $ | (4,139 | ) | | $ | 826 |
| | $ | (3,313 | ) |
Amerant Bancorp Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2019 | | 2018 |
(in thousands) | Before Tax Amount | | Tax Effect | | Net of Tax Amount | | Before Tax Amount | | Tax Effect | | Net of Tax Amount |
Net unrealized holding gains (losses) on securities available for sale: | | | | | | | | | | | |
Change in fair value arising during the period | $ | 40,491 |
| | $ | (9,900 | ) | | $ | 30,591 |
| | $ | (27,566 | ) | | $ | 7,135 |
| | $ | (20,431 | ) |
Reclassification adjustment for net gains included in net income | (996 | ) | | 244 |
| | (752 | ) | | (16 | ) | | 4 |
| | (12 | ) |
| 39,495 |
| | (9,656 | ) | | 29,839 |
| | (27,582 | ) | | 7,139 |
| | (20,443 | ) |
Net unrealized holding (losses) gains on interest rate swaps designated as cash flow hedges: | | | | | | | | | | | |
Change in fair value arising during the period | (15 | ) | | 4 |
| | (11 | ) | | 8,608 |
| | (2,256 | ) | | 6,352 |
|
Reclassification adjustment for net interest (income) expense included in net income | (695 | ) | | 170 |
| | (525 | ) | | 207 |
| | (36 | ) | | 171 |
|
| (710 | ) | | 174 |
| | (536 | ) | | 8,815 |
| | (2,292 | ) | | 6,523 |
|
Total other comprehensive income (loss) | $ | 38,785 |
| | $ | (9,482 | ) | | $ | 29,303 |
| | $ | (18,767 | ) | | $ | 4,847 |
| | $ | (13,920 | ) |
11.14. Stockholders’ Equity
a) Class A Common Stock
Shares of the Company’s Class A common stock issued and outstanding as of June 30, 20192020 and December 31, 20182019 were 28,985,99628,873,196 and 26,851,832,28,927,576, respectively.
IPO Over-allotment Option
On January 23, 2019, the underwriters of the Company’s IPO partially exercised their over-allotment option by purchasing 229,019 shares of the Company’s Class A common stock at the public offering price of $13.00 per share. The net proceeds to the Company from this transaction were approximately $3.0 million.
Private Placements
On February 1, 2019 and February 28, 2019, the Company issued and sold 153,846 and 1,750,000 shares of its Class A common stock, respectively, in private placements exempt from registration under Section 4(a)(2) of the Securities Act and Securities and SEC Rule 506 (the “Private Placements”). The net proceeds to the Company from the Private Placements totaled approximately $26.7 million.
Amerant Bancorp Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
b) Class B Common Stock and Treasury Stock
Shares of the Company’s Class B common stock issued as of June 30, 20192020 and December 31, 20182019 were 17,751,053.13,286,137 and 17,751,053, respectively. As of June 30, 20192020 and December 31, 2018,2019, there were 14,218,59613,286,137 shares and 16,330,91714,218,596 shares, respectively, of Class B common stock outstanding. As of June 30, 2019 and2020, the Company had 0 shares of Class B common stock held as treasury stock. At December 31, 2018,2019, the Company had 3,532,457 shares and 1,420,136 shares, respectively, of Class B common stock held as treasury stock under the cost method.
On March 7, 2019,February 14 and February 21, 2020, the Company repurchased allan aggregate of MSF’s 2,112,321 remaining932,459 shares of nonvoting Class B common stock at a weighted average price of $13.48in two privately negotiated transactions (collectively, the “2020 Repurchase”) for $16.00 per share with proceeds from the IPO over-allotment exercise and the Private Placements, representing anof Class B common stock. The aggregate purchase price for these transactions was approximately $15.2 million, including $0.3 million in broker fees and other expenses. The Company funded the 2020 Repurchase with available cash.
In March 2020, Company’s Board of approximately $28.5 million. The aforementioned 2,112,321Directors authorized the cancellation of all 4,464,916 shares of Class B common stock areCommon Stock previously held inas treasury stock, under the cost method.
Following this repurchase, MSF no longer owns anyincluding shares of the Company’s Class A common stock or Class B common stock,repurchased during 2018, 2019 and therefore, MSF no longer has any rights to register Company shares for resale.
e) Dividends
On2020, effective March 13, 2018, the Company paid a special, one-time, cash dividend of $40.0 million to MSF, or $0.94 per common share.31, 2020.
12.15. Commitments and Contingencies
The Company and its subsidiaries are parties to various legal actions arising in the ordinary course of business. In the opinion of management, the outcome of these proceedings will not have a significant effect on the Company’s consolidated financial position or results of operations.
The Company occupies various premises under noncancelable lease agreements expiring through the year 2046. Actual rental expenses may include deferred rents that are recognized as rent expense on a straight line basis. Rent expense under these leases was approximately $1.2$1.7 million and $1.6$1.2 million for the three months ended June 30, 20192020 and 20182019, respectively, and $2.8 million and and $3.0 million and$2.8 millionfor the sixmonths ended June 30, 2020 and 2019, and 2018, respectively.
Financial instruments whose contract amount represents off-balance sheet credit risk at June 30, 20192020 are generally short-term and are as follows: |
| | | |
(in thousands) | Approximate Contract Amount |
Commitments to extend credit | $ | 786,034 |
|
Standby letters of credit | 12,268 |
|
Commercial letters of credit | 3,428 |
|
| $ | 801,730 |
|
|
| | | |
(in thousands) | Approximate Contract Amount |
Commitments to extend credit | $ | 844,170 |
|
Credit card facilities | 143,666 |
|
Standby letters of credit | 22,068 |
|
Commercial letters of credit | 8,496 |
|
| $ | 1,018,400 |
|
Amerant Bancorp Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
13.16. Fair Value Measurements
Assets and liabilities measured at fair value on a recurring basis are summarized below: | | | June 30, 2019 | June 30, 2020 |
(in thousands) | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Third-Party Models with Observable Market Inputs (Level 2) | | Internal Models with Unobservable Market Inputs (Level 3) | | Total Carrying Value in the Consolidated Balance Sheet | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Third-Party Models with Observable Market Inputs (Level 2) | | Internal Models with Unobservable Market Inputs (Level 3) | | Total Carrying Value in the Consolidated Balance Sheet |
Assets | | | | | | | | | | | | | | |
Securities available for sale | | | | | | | | |
Debt securities available for sale | | | | | | | | |
U.S. government sponsored enterprise debt securities | $ | — |
| | $ | 933,670 |
| | $ | — |
| | $ | 933,670 |
| $ | — |
| | $ | 831,920 |
| | $ | — |
| | $ | 831,920 |
|
Corporate debt securities | — |
| | 271,706 |
| | — |
| | 271,706 |
| — |
| | 386,109 |
| | — |
| | 386,109 |
|
U.S. government agency debt securities | — |
| | 198,740 |
| | — |
| | 198,740 |
| — |
| | 232,454 |
| | — |
| | 232,454 |
|
Municipal bonds | — |
| | 73,327 |
| | — |
| | 73,327 |
| — |
| | 66,786 |
| | — |
| | 66,786 |
|
Mutual funds | — |
| | 23,779 |
| | — |
| | 23,779 |
| |
U.S treasury securities | | — |
| | 2,515 |
| | — |
| | 2,515 |
|
| — |
| | 1,501,222 |
| | — |
| | 1,501,222 |
| — |
| | 1,519,784 |
| | — |
| | 1,519,784 |
|
Equity securities with readily determinable fair values not held for trading | | — |
| | 24,425 |
| | — |
| | 24,425 |
|
Bank owned life insurance | — |
| | 208,965 |
| | — |
| | 208,965 |
| — |
| | 214,693 |
| | — |
| | 214,693 |
|
Derivative instruments | — |
| | 10,304 |
| | — |
| | 10,304 |
| — |
| | 47,211 |
| | — |
| | 47,211 |
|
| $ | — |
| | $ | 1,720,491 |
| | $ | — |
| | $ | 1,720,491 |
| $ | — |
| | $ | 1,806,113 |
| | $ | — |
| | $ | 1,806,113 |
|
Liabilities | | | | | | | | | | | | | | |
Derivative instruments | $ | — |
| | $ | 10,304 |
| | $ | — |
| | $ | 10,304 |
| $ | — |
| | $ | 49,178 |
| | $ | — |
| | $ | 49,178 |
|
Amerant Bancorp Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
|
| | | | | | | | | | | | | | | |
| December 31, 2019 |
(in thousands) | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Third-Party Models with Observable Market Inputs (Level 2) | | Internal Models with Unobservable Market Inputs (Level 3) | | Total Carrying Value in the Consolidated Balance Sheet |
Assets | | | | | | | |
Debt securities available for sale | | | | | | | |
U.S. government sponsored enterprise debt securities | $ | — |
| | $ | 933,112 |
| | $ | — |
| | $ | 933,112 |
|
Corporate debt securities | — |
| | 252,836 |
| | — |
| | 252,836 |
|
U.S. government agency debt securities | — |
| | 228,397 |
| | — |
| | 228,397 |
|
U.S. treasury securities | — |
| | 104,236 |
| | — |
| | 104,236 |
|
Municipal bonds | — |
| | 50,171 |
| | — |
| | 50,171 |
|
| — |
| | 1,568,752 |
| | — |
| | 1,568,752 |
|
Equity securities with readily determinable fair values not held for trading | — |
| | 23,848 |
| | — |
| | 23,848 |
|
Bank owned life insurance | — |
| | 211,852 |
| | — |
| | 211,852 |
|
Derivative instruments | — |
| | 12,097 |
| | — |
| | 12,097 |
|
| $ | — |
| | $ | 1,816,549 |
| | $ | — |
| | $ | 1,816,549 |
|
| | | | | | | |
Liabilities | | | | | | | |
Derivative instruments | $ | — |
| | $ | 11,809 |
| | $ | — |
| | $ | 11,809 |
|
|
| | | | | | | | | | | | | | | |
| December 31, 2018 |
(in thousands) | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Third-Party Models with Observable Market Inputs (Level 2) | | Internal Models with Unobservable Market Inputs (Level 3) | | Total Carrying Value in the Consolidated Balance Sheet |
Assets | | | | | | | |
Securities available for sale | | | | | | | |
U.S. government sponsored enterprise debt securities | $ | — |
| | $ | 820,779 |
| | $ | — |
| | $ | 820,779 |
|
Corporate debt securities | — |
| | 352,555 |
| | — |
| | 352,555 |
|
U.S. government agency debt securities | — |
| | 216,985 |
| | — |
| | 216,985 |
|
Municipal bonds | — |
| | 160,212 |
| | — |
| | 160,212 |
|
Mutual funds | — |
| | 23,110 |
| | — |
| | 23,110 |
|
Commercial paper | — |
| | 12,410 |
| | — |
| | 12,410 |
|
| — |
| | 1,586,051 |
| | — |
| | 1,586,051 |
|
Bank owned life insurance | — |
| | 206,141 |
| | — |
| | 206,141 |
|
Derivative instruments | — |
| | 11,491 |
| | — |
| | 11,491 |
|
| $ | — |
| | $ | 1,803,683 |
| | $ | — |
| | $ | 1,803,683 |
|
Liabilities | | | | | | | |
Derivative instruments | $ | — |
| | $ | 2,388 |
| | $ | — |
| | $ | 2,388 |
|
At the dates shown, there were no Level 3 assets or liabilities.
Level 2 Valuation Techniques
The valuation of securities and derivative instruments is performed through a monthly pricing process using data provided by generally recognized providers of independent data pricing services (the “Pricing Providers”). These Pricing Providers collect, use and incorporate descriptive market data from various sources, quotes and indicators from leading broker dealers to generate independent and objective valuations. The fair value of bank-owned life insurance policies is based on the cash surrender values of the policies as reported by the insurance companies.
The valuation techniques and the inputs used in our consolidated financial statements to measure the fair value of our recurring Level 2 financial instruments consider, among other factors, the following:
Similar securities actively traded which are selected from recent market transactions;
Observable market data which includes spreads in relationship to LIBOR, swap curve, and prepayment speed rates, as applicable; and
The captured spread and prepayment speed are used to obtain the fair value for each related security.
Amerant Bancorp Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
On a quarterly basis, the Company evaluates the reasonableness of the monthly pricing process for the valuation of securities and derivative instruments. This evaluation includes challenging the valuation of a random sample of the different types of securities in the investment portfolio as of the end of the quarter selected. This challenge consists of obtaining from the Pricing Providers a document explaining the methodology applied to obtain their fair value assessments for each type of investment included in the sample selection. The Company then analyzes in detail the various inputs used in the fair value calculation, both observable and unobservable (e.g., prepayment speeds, yield curve benchmarks, spreads, delinquency rates). Management believes that the consistent application of this methodology allows the Company to understand and evaluate the categorization of its investment portfolio.
The methods described above may produce a fair value calculation that may differ from the net realizable value or may not be reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of its financial instruments could result in different estimates of fair value at the reporting date.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
There were no0 significant assets or liabilities measured at fair value on a nonrecurring basis at June 30, 20192020 and December 31, 2018.2019.
Fair Value of Financial Instruments
The fair value of a financial instrument represents the price that would be received from its sale in an orderly transaction between market participants at the measurement date. The best indication of the fair value of a financial instrument is determined based upon quoted market prices. However, in many cases, there are no quoted market prices for the Company’s various financial instruments. As a result, the Company derives the fair value of the financial instruments held at the reporting period-end, in part, using present value or other valuation techniques. Those techniques are significantly affected by management’s assumptions, the estimated amount and timing of future cash flows and estimated discount rates included in present value and other techniques. The use of different assumptions could significantly affect the estimated fair values of the Company’s financial instruments. Accordingly, the net realized values could be materially different from the estimates presented below.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
Because of their nature and short-term maturities, the carrying values of the following financial instruments were used as a reasonable estimate of their fair value: cash and cash equivalents, interest earning deposits with banks, variable-rate loans with re-pricing terms shorter than twelve months, demand and savings deposits, short-term time deposits and other borrowings.
The fair value of loans held for sale, securities, bank owned life insurance and derivative instruments, are based on quoted market prices, when available. If quoted market prices are unavailable, fair value is estimated using the pricing process described in Note 17 to the Company’s audited consolidated financial statements in the Form 10-K.
The fair value of commitments and letters of credit is based on the assumption that the Company will be required to perform on all such instruments. The commitment amount approximates estimated fair value.
Amerant Bancorp Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
The fair value of advances from the FHLB, junior subordinated debentures and fixed-rate loans are estimated using a present value technique by discounting the future expected contractual cash flows using the current rates at which similar instruments would be issued with comparable credit ratings and terms at the measurement date.
The fair value of long-term time deposits, including certificates of deposit, is determined using a present value technique by discounting the future expected contractual cash flows using current rates at which similar instruments would be issued at the measurement date.
The estimated fair value of financial instruments where fair value differs from carrying value are as follows:
|
| | | | | | | | | | | | | | | |
| June 30, 2020 | | December 31, 2019 |
(in thousands) | Carrying Value | | Estimated Fair Value | | Carrying Value | | Estimated Fair Value |
Financial assets: | | | | | | | |
Loans | $ | 2,966,143 |
| | $ | 2,847,190 |
| | $ | 2,819,477 |
| | $ | 2,721,291 |
|
Financial liabilities: | | | | | | | |
Time deposits | 1,833,597 |
| | 1,864,959 |
| | 1,745,735 |
| | 1,759,347 |
|
Advances from the FHLB | 1,050,000 |
| | 1,083,807 |
| | 1,235,000 |
| | 1,244,515 |
|
Senior notes | 58,419 |
| | 60,724 |
| | — |
| | — |
|
Junior subordinated debentures | 64,178 |
| | 53,180 |
| | 92,246 |
| | 86,738 |
|
Amerant Bancorp Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements (Unaudited)
|
| | | | | | | | | | | | | | | |
| June 30, 2019 | | December 31, 2018 |
(in thousands) | Carrying Value | | Estimated Fair Value | | Carrying Value | | Estimated Fair Value |
Financial assets | | | | | | | |
Loans | $ | 2,768,972 |
| | $ | 2,650,162 |
| | $ | 2,850,015 |
| | $ | 2,739,721 |
|
Financial liabilities | | | | | | | |
Time deposits | 1,721,207 |
| | 1,733,538 |
| | 1,745,025 |
| | 1,740,752 |
|
Advances from the FHLB | 1,125,000 |
| | 1,136,506 |
| | 1,166,000 |
| | 1,167,213 |
|
Junior subordinated debentures | 118,110 |
| | 114,581 |
| | 118,110 |
| | 99,450 |
|
The following table shows the calculation of basic and diluted earnings per share:
|
| | | | | | | | | | | | | | | |
| Three Months ended June 30, | | Six Months Ended June 30, |
(in thousands, except per share data) | 2020 | | 2019 | | 2020 | | 2019 |
Numerator: | | | | | | | |
Net (loss) income available to common stockholders | $ | (15,279 | ) | | $ | 12,857 |
| | $ | (11,897 | ) | | $ | 25,928 |
|
Denominator: | | | ` | | | | |
Basic weighted average shares outstanding | 41,720 |
| | 42,466 |
| | 41,953 |
| | 42,610 |
|
Dilutive effect of share-based compensation awards | — |
| | 353 |
| | — |
| | 255 |
|
Diluted weighted average shares outstanding | 41,720 |
| | 42,819 |
| | 41,953 |
| | 42,865 |
|
| | | | | | | |
Basic (loss) earnings per common share | $ | (0.37 | ) | | $ | 0.30 |
| | $ | (0.28 | ) | | $ | 0.61 |
|
Diluted (loss) earnings per common share | $ | (0.37 | ) | | $ | 0.30 |
| | $ | (0.28 | ) | | $ | 0.60 |
|
|
| | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
(in thousands, except per share data) | 2019 | | 2018 | | 2019 | | 2018 |
Numerator: | | | | | | | |
Net income available to common stockholders | $ | 12,857 |
| | $ | 10,423 |
| | $ | 25,928 |
| | $ | 19,852 |
|
Denominator: | | | | | | | |
Basic weighted average shares outstanding | 42,466 |
| | 42,489 |
| | 42,610 |
| | 42,489 |
|
Dilutive effect of share-based compensation awards | 353 |
| | — |
| | 255 |
| | — |
|
Diluted weighted average shares outstanding | 42,819 |
| | 42,489 |
| | 42,865 |
| | 42,489 |
|
| | | | | | | |
Basic earnings per common share | $ | 0.30 |
| | $ | 0.25 |
| | $ | 0.61 |
| | $ | 0.47 |
|
Diluted earnings per common share | $ | 0.30 |
| | $ | 0.25 |
| | $ | 0.60 |
| | $ | 0.47 |
|
Amerant Bancorp Inc.June 30, 2020 and Subsidiaries
Notes2019, potential dilutive instruments consisted of unvested shares of restricted stock and restricted stock units mainly related to Interim Consolidated Financial Statements (Unaudited)
the Company’s IPO in 2018, totaling 491,360 and 789,652, respectively. As of June 30, 2020, potential dilutive instruments were not included in the diluted earnings per share computation because the Company reported a net loss and their inclusion would have an anti-dilutive effect. As of June 30, 2019, potential dilutive instruments consist of 738,138 unvested shares of restricted stock, including 736,839 shares of restricted stock issued in December 2018 in connection with the Company’s IPO and 1,299 additional shares of restricted stock issued in January 2019. As of June 30, 2019, these 738,138 unvested shares of restricted stock were included in the diluted earnings per share computation because, when the unamortized deferred compensation cost related to these shares was divided by the average market price per share at that date,those dates, fewer shares would have been purchased than restricted shares assumed issued. Therefore, at that date,those dates, such awards resulted in higher diluted weighted average shares outstanding than basic weighted average shares outstanding, in the three and six months ended June 30, 2019, and had a dilutive effect in per share earnings for the three (not shown due to rounding) and six months ended June 30, 2019. As of June 30, 2018, the Company had no potentially dilutive instruments.earnings.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is designed to provide a better understanding of various factors related to Amerant Bancorp Inc.’s (the “Company,” “Amerant,” “our” or “we”) results of operations and financial condition and its wholly owned subsidiaries, including its principal subsidiary, Amerant Bank, N.A. (the “Bank”). The Bank has twothree principal subsidiaries, Amerant Trust, N.A. (“Amerant Trust”), a non-depository trust company, and Amerant Investments, Inc., a securities broker-dealer (“Amerant Investments”), and a grand-Cayman based trust company subsidiary Elant Bank & Trust LTD. (the “Cayman Bank”).
This discussion is intended to supplement and highlight information contained in the accompanying unaudited interim consolidated financial statements and related footnotes included in this Quarterly Report on Form 10-Q (“Form 10-Q”), as well as the information contained in the Company’s annual report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 1, 2019March 16, 2020 (“Form 10-K”).
Cautionary Notice Regarding Forward-Looking Statements
Various of the statements made in this Form 10-Q, including information incorporated herein by reference to other documents, are “forward-looking statements” within the meaning of, and subject to, the protections of the Securities Act of 1933 (the “Securities Act”) and the Securities Exchange Act of 1934 (the “Exchange Act”). These forward-looking statements include, without limitation, future financial and operating results; costs and revenues; economic conditions generally and in our markets and among our customer base; the challenges and uncertainties caused by the COVID-19 pandemic; the measures we have taken in response to the COVID-19 pandemic; our participation in the Paycheck Protection Program (“PPP”); loan demand; drivers for improvement; changes in the mix of our earning assets and our deposit and wholesale liabilities; net interest income and margin; yields on earning assets; interest rates and yield curves (generally and those applicable to our assets and liabilities); credit quality, including loan performance, nonperformingnon-performing assets, provisions for loan losses, charge-offs, other-than-temporary impairments and collateral values; the effect of redemptions of certain fixed rate trust preferred securities and related junior subordinated debt; rebranding and staff realignment costs and expected savings; market trends; and customer preferences and anticipated closures of banking centers in Florida and Texas, as well as statements with respect to our objectives, expectations and intentions and other statements that are not historical facts. All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “will,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “plan,” “point to,” “project,” “could,” “intend,” “target,” “goals,” “outlooks,” “modeled” and other similar words and expressions of the future in this Form 10-Q. These forward-looking statements should be read together with the “Risk Factors” included in this Form 10-Q, our Form 10-K and our other reports filed with the SEC. Additionally, these forward-looking statements may not be realized due to a variety of factors which are, in some cases, beyond the Company’s control and which could materially affect the Company’s results of operations, financial condition, cash flows, performance or future achievements or events. Currently, one of the most significant factors, is the potential adverse effect of the COVID-19 pandemic on the financial condition, results of operations, cash flows and performance of the Company and its customers and the global economy and financial markets. The extent of the impact of COVID-19 over the Company and its customers will depend on a number of issues and future developments, which, at this time, are extremely uncertain and cannot be accurately predicted, including without limitation:the scope, severity and duration of the pandemic, the actions taken to contain or mitigate the impact of the pandemic, and the direct and indirect effects that the pandemic and related containment measures may have, among others. You should consider many of the risks listed in this report together with those risks and uncertainties described in “Risk factors” in our Form 10-K and in our other filings with the SEC, as being heightened as a result of the ongoing COVID-19 pandemic.
Additional factors that may cause actual results to deviate significantly from current expectations include but are not limited to:
the COVID-19 pandemic has significantly impacted economic conditions globally and in the United States, could have a material adverse effect on our abilitybusiness, financial condition and results of operation, and the ultimate impact on our business, financial condition and results of operations, will depend on future developments and other factors that are highly uncertain and will be impacted by the scope, severity and duration of the pandemic and actions taken by governmental authorities in response;
as a participating lender in the U.S. Small Business Administration (“SBA”) PPP, the Company and the Bank are subject to successfully execute additional risks of litigation from the Bank’s customers or other parties regarding the Bank’s processing of loans for the PPP and risks that the SBA may not fund some or all PPP loan guaranties;
our strategic plan manage ourand growth and achieve our performance targets which assume, among other things, continued growth in our domestic loans, increased domestic deposits, increased cross-selling of services, increased efficiency and cost savings;
the effects of future economic, business, and market condition changes, domestic and foreign, especially those affecting our Venezuelan depositors and credit card holders;
business and economic conditions, generally and especially in our primary market areas;strategy may not be achieved as quickly or as fully as we seek;
operational risks are inherent toin our business;businesses;
market conditions and economic cyclicality may adversely affect our industry;
our ability to successfully manage our credit risksprofitability and the sufficiency of our allowance for possible loan losses;
the failure of assumptions and estimates, as well as differences in, and changes to, economic, market, interest rate, and credit conditions, including changes in borrowers’ credit risks and payment behaviors, including those resulting from the changes to our credit card program in April 2019;
compliance with governmental and regulatory requirements, including the Dodd-Frank Act and others relating to banking, consumer protection, securities and tax matters, and our ability to maintain licenses required in connection with mortgage origination, sale and servicing operations;
compliance with the Bank Secrecy Act of 1970, the rules of the Treasury Department’s Office of Foreign Assets Control and anti-money laundering laws and regulations, especially given our exposure to Venezuela customers;
governmental monetary and fiscal policies, including market interest rates;
the effectiveness of our enterprise risk management framework, including internal controls and disclosure controls;
fluctuations in the values of the securities held in our securities portfolio;
the risks ofliquidity may be affected by changes in interest rates and interest rate levels, the shape of the yield curve and economic conditions;
our cost of funds may increase as a result of general economic conditions, interest rates, inflation and competitive pressures;
many of our loans and our obligations for borrowed money are priced based on variable interest rates tied to the levels, compositionLondon Interbank Offering Rate, or LIBOR. We are subject to risks that LIBOR will no longer be available as a result of the United Kingdom’s Financial Conduct Authority ceasing to require the submission of LIBOR quotes after 2021;
our derivative instruments may expose us to certain risks;
our valuation of securities and costs of deposits, loan demand,investments and the values and liquidity of loan collateral, securities, and interest-sensitive assets and liabilities, and the risks and uncertaintydetermination of the amounts realizable;amount of impairments taken on our investments are subjective and, if changed, could materially adversely affect our results of operations or financial condition;
changesour success depends on our ability to compete effectively in the availabilityhighly competitive markets;
our success depends on general and costlocal economic conditions where we operate;
severe weather, natural disasters, global pandemics, acts of credit and capital in the financial markets, and the types of instruments that may be included as capital for regulatory purposes;
changes in the prices, values and sales volumes of residential real estate and CRE;
thewar or terrorism, theft, civil unrest, government expropriation or other external events could have significant effects of competition from a wide variety of local, regional, national and other providers of financial, investment, trust and other wealth management services and insurance services, including the disruptive effects of financial technology companies and other competitors who are not subject to the same regulations as the Company and the Bank;on our business;
defaults by or deteriorating asset quality of other institutions;financial institutions could adversely affect us;
nonperforming and similar assets take significant time to resolve and may adversely affect our results of operations and financial condition;
changes in the failurereal estate markets, including the secondary market for residential mortgage loans, may adversely affect us;
our allowance for loan losses may prove inadequate or we may be negatively affected by credit risk exposures;
if our business does not perform well, we may be required to recognize an impairment of assumptionsour goodwill or other long-lived assets or to establish a valuation allowance against the deferred income tax asset, which could adversely affect our results of operations or financial condition;
mortgage servicing rights, or MSRs, requirements may change and estimates underlying the establishmentrequire us to incur additional costs and risks;
we may be contractually obligated to repurchase mortgage loans we sold to third-parties on terms unfavorable to us;
our concentration of allowances for possibleCRE loans could result in further increased loan losses, and other asset impairments, losses, valuationsadversely affect our business, earnings, and financial condition;
liquidity risks could affect operations and jeopardize our financial condition;
certain funding sources may not be available to us and our funding sources may prove insufficient and/or costly to replace;
our Venezuelan deposit concentration may lead to conditions in Venezuela adversely affecting our operations;
our investment advisory and trust businesses could be adversely affected by conditions affecting our Venezuelan customers;
our brokered deposits and wholesale funding increases our liquidity risk, could increase our interest rate expense and potentially increase our deposit insurance costs;
technological changes affect our business including potentially impacting the revenue stream of assetstraditional products and liabilitiesservices, and we may have fewer resources than many competitors to invest in technological improvements;
potential gaps in our risk management policies and internal audit procedures may leave us exposed to unidentified or unanticipated risk, which could negatively affect our business;
we may determine that our internal controls and disclosure controls could have deficiencies or weaknesses;
any failure to protect the confidentiality of customer information could adversely affect our reputation and subject us to financial sanctions and other estimates, includingcosts that could have a material adverse effect on our business, financial condition and results of operations;
our information systems may experience interruptions and security breaches, and are exposed to cybersecurity threats;
future acquisitions and expansion activities may disrupt our business, dilute shareholder value and adversely affect our operating results;
attractive acquisition opportunities may not be available to us in the timingfuture;
certain provisions of our amended and restated articles of incorporation and amended and restated bylaws, Florida law, and U.S. banking laws could have anti-takeover effects by delaying or preventing a change of the implementation of the current expected credit losses modelcontrol that you may favor;
we may be unable to attract and retain key people to support our business;
our employees may take excessive risks which could negatively affect our financial instruments (“CECL”)condition and the changebusiness;
we are subject to extensive regulation that could limit or restrict our activities and adversely affect our earnings;
litigation and regulatory investigations are increasingly common in our credit card programs;
the risks of mergers, acquisitionsbusinesses and divestitures, including, without limitation, the related time and costs of implementing such transactions, integrating operations as part of these transactions and possible failures to achieve expected gains, revenue growthmay result in significant financial losses and/or expense savingsharm to our reputation;
we are subject to capital adequacy and liquidity standards, and if we fail to meet these standards our financial condition and operations would be adversely affected;
our operations are subject to risk of loss from such transactions;unfavorable fiscal, monetary and political developments in the U.S. and other countries where we do business;
changes in technology or products that may be more difficult, costly, or less effective than anticipated;accounting rules applicable to banks and financial institutions could adversely affect our financial condition and results of operations;
the effectsDodd-Frank Act currently restricts our future issuance of war, civil unrest,trust preferred securities and cumulative preferred securities as eligible Tier 1 risk-based capital for purposes of the regulatory capital guidelines for bank holding companies;
we may need to raise additional capital in the future, but that capital may not be available when it is needed or other conflicts, actson favorable terms;
we will be subject to heightened regulatory requirements if our total assets grow in excess of terrorism, hurricanes or other catastrophic events that$10 billion;
the Federal Reserve may affect general economic conditions, including in countries where require us to commit capital resources to support the Bank;
we have depositorsmay face higher risks of noncompliance with the Bank Secrecy Act and other customers;anti-money laundering statutes and regulations than other financial institutions;
failures to comply with the effectsfair lending laws, CFPB regulations or the Community Reinvestment Act could adversely affect us;
Fannie Mae and Freddie Mac restructuring may adversely affect the mortgage markets;
we adopted a new accounting principle that requires immediate recognition in the statement of recent and future legislative and regulatory changes, includingincome of unrealized changes in banking,the fair value of equity securities, tax, tradewhich includes mutual funds, increasing the volatility of our results of operations;
we changed our brand from “Mercantil” to “Amerant,” which could adversely affect our business and finance laws,profitability;
we are incurring incremental costs as a separate, public company;
as a separate, public company, we spend additional time and resources to comply with rules and regulations suchthat previously did not apply to us;
our historical consolidated financial data are not necessarily representative of the results we would have achieved as a separate company and may not be a reliable indicator of our future results;
certain of our directors may have actual or potential conflicts of interest because of their equity ownership in Mercantil Servicios Financieros, C.A., or the planned cessationFormer Parent, or their positions with the Former Parent and us;
if securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the price of LIBOR,our common stock and their applicationtrading volume could decline;
our stock price may fluctuate significantly;
a limited market exists for the Company’s shares of Class B common stock on the Nasdaq Global Select Market. An active trading market may not develop or continue for the Company’s shares of Class B common stock, which could adversely affect the market price and market volatility of those shares;
certain of our existing stockholders could exert significant control over the Company;
we have the ability to issue additional equity securities, which would lead to dilution of our issued and outstanding common stock;
we expect to issue more Class A common stock in the future which may dilute holders of Class A common stock;
holders of Class B common stock have limited voting rights. As a result, holders of Class B common stock will have limited ability to influence shareholder decisions;
our dual classes of common stock may limit investments by investors using index-based strategies;
we are an “emerging growth company,” and, as a result of the reduced disclosure and governance requirements applicable to emerging growth companies, our regulators;common stock may be less attractive to investors;
we do not currently intend to pay dividends on our common stock;
our ability to continuepay dividends to increaseshareholders in the future is subject to profitability, capital, liquidity and regulatory requirements and these limitations may prevent us from paying dividends in the future;
we face strategic risks as an independent company and from our core domestic deposits, and reducehistory as a part of the percentage of foreign deposits;
Former Parent;
the occurrence of fraudulent activity, data breaches or failuresfair value of our information security controls or cybersecurity-related incidentsinvestment securities can fluctuate due to market conditions out of our control;
we may not be able to generate sufficient cash to service all of our debt, including the Senior Notes;
we and Amerant Florida Bancorp Inc., the subsidiary guarantor, are each a holding company with limited operations and depend on our subsidiaries for the funds required to make payments of principal and interest on the Senior Notes;
we may incur a substantial level of debt that may compromise our systems or customers’ information;
interruptions involving our information technology and telecommunications systems or third-party services;
changes in our senior management team andcould materially adversely affect our ability to attract, motivate and retain qualified personnel consistent withgenerate sufficient cash to fulfill our strategic plan;
obligations under the costs and obligations associated with being a newly public company;
our ability to maintain our strong reputation, particularly in light of our ongoing rebranding effort;
claims or legal actions to which we may be subject;Senior Notes; and
the other factors and information in our Form 10-K and in this Form 10-Q and other filings that we make with the SEC under the Exchange Act and Securities Act. See “Risk Factors” in our Form 10-K.10-K and this Form 10-Q.
Forward-looking statements, including those as to our beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions, involve known and unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause the Company’s actual results, performance, achievements, or financial condition to be materially different from future results, performance, achievements, or financial condition expressed or implied by such forward-looking statements. You should not rely on any forward-looking statements as predictions of future events. In addition, our past results of operations are not necessarily indicative of our future results of operations. You should not expect us to update any forward-looking statements.statements, except as required by law. All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary notice, together with those risks and uncertainties described in “Risk factors” in our Form 10-K, in this Form 10-Q and in our other filings with the SEC, which are available at the SEC’s website www.sec.gov.www.sec.gov.
OVERVIEW
Our Company
We are a bank holding company headquartered in Coral Gables, Florida. We provide individuals and businesses a comprehensive array of deposit, credit, investment, wealth management, retail banking and fiduciary services. We serve customers in our United States markets and select international customers. These services are offered primarily through the Bank and its Amerant Trust, and Amerant Investments, and Cayman Bank subsidiaries. The Bank’s three primary markets are South Florida, where we operate 1519 banking centers in Miami-Dade, Broward and Palm Beach counties; the greater Houston, Texas area where we have eight banking centers that serve nearby areas of Harris, Montgomery, Fort Bend and Waller counties, and a loan production office (“LPO”) in Dallas, Texas which opened in early 2019, and the greater New York City area, New York, where we also maintain a LPO that focuses on originating commercial real estate (“CRE”) loans. The Company is in the process of closing one banking center in Florida and another in Texas, which the Company expects to complete by year-end 2020. These closures are the result of extensive analyses of the profitability of the Company’s retail banking network and their current and expected individual contributions to achieving the Company’s strategic goals.
COVID-19 Pandemic
On March 11, 2020, the World Health Organization recognized an outbreak of a novel strain of the coronavirus, COVID-19, as a pandemic.
On March 13, 2020, the President of the Unites States of America (U.S.) declared a national state of emergency. In response to this outbreak, the governments of many states, cities and municipalities in the U.S., including the States of Florida, New York and Texas, have taken preventative or protective actions, such as imposing restrictions on business operations and advising or requiring individuals to limit or forego their time outside of their homes.
Business Continuity Plan Activated
The health and well-being of the Company’s employees, customers, and local communities remains paramount while the Company continues to provide the necessary services and products to customers with minimal disruption.
On March 16, 2020, we activated the Company's well-established Business Continuity Plan, or BCP. The BCP has effectively ensured the Company's resilient platform continues to operate loan production offices. Weduring these extraordinary times, and has allowed us to continue providing the quality of products and services our customers have no foreign offices.
Rebranding
We launched “Amerant” as our new brand across allcome to expect. The plan is supported and complemented by a robust business continuity governance framework, life safety program and annual enterprise-wide exercise and training program. The Company’s BCP plan is framed based on industry best practices and regulatory guidelines and is subject to periodic testing and independent audits. As of June 30, 2020, approximately 86% of the Company’s employees are working remotely. On June 3, 2020, the Company started Phase 1 of reintroducing employees working remotely back to the workplace. Given the increasing trend in COVID-19 cases in our markets, particularly in Florida and Texas, during the month of June and continuing in July, we are following a careful, phased-approach which includes a voluntary return of a limited number of employees, based on work location, roles and responsibilities, and various safety protocols. Banking centers have returned to regular business hours, following strict federal, state and local government guidelines supporting the safety of our employees and our customers. Amerant continues to focus on serving customers without interruption, while maintaining a safe environment.
During the first half of 2020, there were no staffing changes resulting from the COVID-19 pandemic.
Supporting Our Communities
Beginning on March 26, 2020, we began providing an array of tangible and meaningful support measures to support our customers and communities during the COVID-19 pandemic. These measures include waiving the Bank’s ATM fees for customers and non-customers, late payment fees on all consumer and business loans, and deposit account fees on a case-by-case basis. Measures related to waiving of fees, with the exception of late payment fees on loans, were discontinued during the third quarter. The Bank is also refraining from reporting negative information such as past due balances to credit bureaus, and, importantly, offering individualized loan payment assistance such as interest payment deferral and forbearance options. Additionally, in April 2019. The launch included rebranding2020, the Bank increased its mobile check deposit limits. All of all digital platforms, new signs in most branchesthese efforts align with regulatory guidance aimed at helping customers and buildings,communities, while remaining prudent and a broad campaign through digitalmanageable, and traditional media focused on brand awareness. We expect our rebranding to be substantially completed during the fourth quarter of 2019, and we expect to spend approximately $1.8 million in additional rebranding expenses for the second half of 2019. In addition, we expect to incur approximately $1.2 million in capital expenditures, or CAPEX, which will be amortized over the shorter of seven years (the estimated useful life of our signs), the remaining life of owned buildings or the remaining terms of leased facilities.continue until further notice.
CARES Act
On June 4, 2019,March 27, 2020, the Company’s stockholders approvedCoronavirus Aid, Relief, and Economic Security Act (“CARES Act”), an amendmentapproximately $2.0 trillion COVID-19 response bill, to provide emergency economic relief to individuals, small businesses, mid-size companies, large corporations, hospitals and other public health facilities, and state and local governments, was enacted. The CARES Act allocated the SBA $350.0 billion to provide loans of up to $10.0 million per small business as defined in the CARES Act. On April 2, 2020, the Bank began participating in the SBA’s PPP, by providing loans to these businesses to cover payroll, rent, mortgage, healthcare, and utilities costs, among other essential expenses. On April 24, 2020, the Paycheck Protection Program and Health Care Enhancement Act, adding funding to the Company’s AmendedPPP, was enacted. On July 4, 2020, new legislation was signed into law that extended the availability of loans from June 30, 2020 until August 8, 2020. As of June 30, 2020, total PPP loans were $214.1 million, representing over 2,000 loans approved. Over 90% of these loans were under $350,000 each.
Loan Loss Reserve and Restated Articles of Incorporation (the “Articles of Incorporation”) to change the Company’s name from “Mercantil Bank Holding Corporation” to “Amerant Bancorp Inc.” (the “Name Change”). The Name Change became effective on June 5, 2019. Each ofMitigation Programs
On March 26, 2020, the Company began offering loan payment relief options to customers impacted by the Bank and its principal subsidiaries now operate under the “Amerant” brand.
Segment Reporting
Prior to the second quarter of 2019, the Company had four reportable segments: Personal and Commercial Banking (“PAC”), Corporate LATAM, Treasury, and Institutional. Results of these segments were presented on a managed basis. This structure was driven, among other things, by how the Company previously managed the business, how internal reporting was prepared and analyzed, and how management made decisions.
BeginningCOVID-19 pandemic, including interest-only and/or forbearance options. These programs continued in the second quarter of
2019, all decisions, including2020. As of June 30, 2020, loans modified under these programs totaled $1.1 billion. As of this date, loans in these programs on which the interest-only/or forbearance period expired at that date totaled $504.7 million, or 45.4% of total modified loans. The Company collected payments due on $8.4 million of modified loans through June 30, 2020. Modified loans totaling $496.3 million have payments due by July 31, 2020. In accordance with accounting and regulatory guidance, loans to borrowers benefiting from these measures are not considered Troubled Debt Restructurings (“TDRs”). The Company is closely monitoring the performance of these loans under the terms of the temporary relief granted.The following table summarizes the loan balances in these programs as of July 31, 2020, June 30, 2020 and May 1, 2020: |
| | | | | | | | | | | | |
Program Detail | | July 31, 2020 | | June 30, 2020 | | May 1, 2020 |
(in thousands) | | | | | | |
90-day payment deferral; interest added to principal balance upon modification and continues to accrue each month | | $ | 184,665 |
| | $ | 349,166 |
| | $ | 451,076 |
|
90-day interest payment deferral with no escrow payments | | 84,449 |
| | 133,761 |
| | 441,212 |
|
90-day interest payment deferral including escrow payments | | 18,764 |
| | 150,464 |
| | 196,809 |
|
180-day interest payment deferral | | 20,973 |
| | 20,973 |
| | 29,906 |
|
| | $ | 308,851 |
| | $ | 654,364 |
| | $ | 1,119,003 |
|
The Company performed a comprehensive review of its loan exposures by industry to identify those relatingmost susceptible to loan growth and concentrations, deposit and other funding, market risk,increased credit risk operational risk and pricing are made after assessing their effects on the Company as a whole, using a single segment concept. This change is consistent with the Company’s strategic shift to focus on community banking after the spin-off from its former parent (“MSF” or “the Former Parent”) in August 2018, and the rebranding of the Company launched in April 2019. As part of this strategic shift, the Company has significantly reduced its international lending activities which had been largely allocated to the Corporate LATAM segment. As a result, management reassessed the Company’s remaining international business activities as well as the remaining three segments to determine whether the Company would continue to manage these businesses as separate operating segments, or consolidated as one single segment. In performing its assessment, management noted a similarity in the nature of products and services, processes, type of customers, distribution methods, and regulatory environment of its businesses. Further, management determined that it will no longer review discrete financial information related to the remaining operating segments for purposes of assessing performance or to allocate resources.
As a result of the above referenced strategic shift, assessmentsCOVID-19 pandemic. The Company estimated the outstanding loan portfolio is represented by loans to borrowers in industries, or with collateral values, that are potentially more vulnerable to the financial impact of the pandemic to be approximately 42% at June 30 2020, up from approximately 30% of loans at March 31, 2020. The Company estimates approximately 67% of these loans are secured with real estate collateral at June 30, 2020, compared to approximately 50% at March 31, 2020.
The Company recorded a provision for loan losses of $48.6 million during the second quarter of 2020, compared to $22.0 million in the first quarter of 2020. The Company had released $1.4 million in the second quarter of 2019. The increase during the second quarter of 2020 is mainly due to a provision of $28.2 million due to specific reserve requirements as a result of loan portfolio deterioration and determination,downgrades during the second quarter of 2020. In addition, the increase in the provision for loan losses during the second quarter of 2020 included $20.2 million driven by estimated probable losses reflecting deterioration in the macro-economic environment as a result of the COVID-19 pandemic across multiple impacted sectors.
The Company consistently reviews its existing credit approval practices to ensure that sound and prudent underwriting standards continue to drive the Company’s business relationships. As a result, the Company enhanced the monitoring of its entire loan portfolio and has proactively increased the frequency of periodic reviews and conversations with loan customers in anticipation of their future needs, which aligns with our relationship-centric banking model.
Risks and Uncertainties
The COVID-19 pandemic has severely restricted the level of economic activity in the U.S. and around the world since March 2020. Several states and cities across the U.S., including the States of Florida, New York and Texas and cities where we have banking centers, LPOs and where our principal place of business is now managed as a single operating segment,located, have also implemented quarantines, restrictions on a consolidated basis. Therefore, beginning with the quarter ended June 30, 2019,travel, “shelter at home” orders, and restrictions on types of business that may continue to operate. While some of these measures and restrictions have been lifted and certain businesses have reopened, the Company determinedcannot predict when restrictions currently in place may be lifted, or whether restrictions that no separate currenthave been lifted will need to be imposed or historical reportable segment disclosures are requiredtightened in the future if viewed as necessary due to public health concerns. For example, the States of Florida and Texas have seen increases in the cases of COVID-19 during the second quarter and into the third quarter which may prompt state or local governments to reinstate certain measures and restrictions. Given the uncertainty regarding the spread and severity of the COVID-19 pandemic and its adverse effects on the U.S. and global economies, the impact to the Company’s financial statements cannot be accurately predicted at this time. See—Risk Factors under U.S. GAAP.Part II, Item 1A in this Form 10-Q.
Primary Factors Used to Evaluate Our Business
Results of Operations. In addition to net income (loss), the primary factors we use to evaluate and manage our results of operations include net interest income, noninterest income and noninterest expenses.expenses, ROA and ROE.
Net Interest Income. Net interest income represents interest income less interest expense. We generate interest income from interest, dividends and fees received on interest-earning assets, including loans and investment securities we own. We incur interest expense from interest paid on interest-bearing liabilities, including interest-bearing deposits, and borrowings such as advances from the Federal Home Loan Bank (the “FHLB”(“FHLB”) and other borrowings such as repurchase agreements, senior notes and junior subordinated debentures. Net interest income typically is the most significant contributor to our revenues and net income. To evaluate net interest income, we measure and monitor: (i) yields on our loans and other interest-earning assets; (ii) the costs of our deposits and other funding sources; (iii) our net interest spread; (iv) our net interest margin, or NIM; and (v) our provisions for loan losses. Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities. NIM is calculated by dividing net interest income for the period by average interest-earning assets.assets during that same period. Because noninterest-bearing sources of funds, such as noninterest-bearing deposits and stockholders’ equity, also fund interest-earning assets, NIM includes the benefit of these noninterest-bearing sources of funds. Non-refundable loan origination fees, net of direct costs of originating loans, are deferred and recognized over the life of the related loan as an adjustment to interest income in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”).
Changes in market interest rates and the interest we earn on interest-earning assets, or which we pay on interest-bearing liabilities, as well as the volumes and the types of interest-earning assets, interest-bearing and noninterest-
bearingnoninterest-bearing liabilities and stockholders’ equity, usually have the largest impact on periodic changes in our net interest spread, NIM and net interest income. We measure net interest income before and after the provision for loan losses.
Noninterest Income. Noninterest income consists of, among other revenue streams: (i) service fees on deposit accounts; (ii) income from brokerage, advisory and fiduciary activities; (iii) benefits from and changes in cash surrender value of bank-owned life insurance, or BOLI, policies; (iv) card and trade finance servicing fees; (v) securities gains or losses; (vi) net gains and losses on early extinguishment of FHLB advances; and (vii) other noninterest income. In 2019, noninterest income also included data processing and fees for other services provided to ourthe Company’s Former Parent and its affiliates; (vi) securities gains or losses; and (vii) other noninterest income.affiliates.
Our income from service fees on deposit accounts is affected primarily by the volume, growth and mix of deposits we hold. FeesThese are affected by the volume of customer transactions, prevailing market conditions, includingpricing of deposit services, interest rates, generally, and for deposit products, our marketing efforts and other factors.
Our income from brokerage, advisory and fiduciary activities consists of brokerage commissions related to theour customers’ trading volume, of our customers’ transactions, fiduciary and investment advisory fees generally based on a percentage of the average value of assets under management and custody, and account administrative services and ancillary fees during the contractual period. Our assets under management and custody (“AUM”) accounts increased $195.0 million, or 12.2%, to $1.8totaled $1.72 billion at June 30, 20192020, a decrease of $100.0 million from $1.6$1.82 billion at December 31, 2018.2019. The Companydecrease is focused on leveraging our wealth management platformmainly attributable to grow this sidelower valuations resulting from the global financial impact of our domestic business.the COVID-19 pandemic, partially offset by account growth due to the Company’s increasingly successful sales efforts.
Income from changes in the cash surrender value of our BOLI policies represents the amountamounts that may be realized under the contracts with the insurance carriers, which are nontaxable.
Credit card issuance fees currently are generally recognized over the period in which the cardholders are entitled to use the cards. Interchange fees, other fees and revenue sharing are recognized when earned. Trade finance servicing fees, which primarily include commissions on letters of credit, are generally recognized over the service period on a straight line basis. Card servicing fees hashave included credit card issuance and credit and debit card interchange and other fees.
We have been revisingrevised our card program to continue to serve our card customers, reduce risks and increase the efficiency of a relatively small program. UnderWe entered into referral arrangements with recognized U.S.-based card issuers, which permit us to serve our new credit card arrangements, we willinternational and domestic customers and earn referral fees and a share in a portion of card revenues from cards that we referinterchange revenue without exposure to the unaffiliated card issuer.credit risk. Our credit card issuance and interchange fees, and interest, will decreasedecreased as we ceaseceased to be a direct card issuer. We entered into an arrangement with a major U.S.-based global card issuer
In 2019 and began referring our international customers to it in May 2019. We expect to market this program to our other foreign customers in the Fall of 2019 when foreign cardholders’ charge privileges will end. We are currently negotiating a similar referral program with another card issuer for our domestic customers. These programs will permit us to serve our customers and earn referral fees and a share of card revenue without credit risk to our balance sheet.
We haveprior periods, we historically provided certain administrative services to ourthe Former Parent and itsParent’s non-U.S. affiliates under certain administrative services and transition service agreements with arms-length terms and charges.pricing. Income from this source was generally based on changes to the direct costs associated with providing the services plus a markup, and based on changes to the amount and scope of services provided, which are reviewed periodically. Fees for these services are billed by us andThese fees were paid by our Former Parent and its non-U.S. affiliates in U.S. Dollars. DuringFor the six months ended June 30,first half of 2019, we were paid approximately $0.9 million for these services. These administrative and transition services have substantially ended with only a small portion expected to remain through the end of third quarter of 2019.in 2019, therefore, we earned no fees for these services in 2020. Our Former Parent’s non-U.S. affiliates have also provided, and continue to provide, certain shareholder services to us.us under a service agreement.
Our gains and losses on sales of securities are derived from sales from our securities portfolio and are primarily dependent on changes in U.S. Treasury interest rates and asset liability management activities. Generally, as U.S. Treasury rates increase, our securities portfolio decreases in market value, and as U.S. Treasury rates decrease, our securities portfolio increases in value.
Our gains or losses on sales of property and equipment are recorded at the date of the sale and presented as other noninterest income or expense in the period they occur.
Noninterest Expense.Noninterest expense includes,consists, among other things:things of: (i) salaries and employee benefits; (ii) occupancy and equipment expenses; (iii) professional and other services fees; (iv) FDIC deposit and business insurance assessments and premiums; (v) telecommunication and data processing expenses; (vi) depreciation and amortization; and (vii) other operating expenses.
Salaries and employee benefits include compensation (including severance expenses), stock-based compensation, employee benefits and employer tax expenses for our personnel. Salaries and employee benefits are partially offset by the deferral of expenses directly related to the origination of loans. As mentioned in the “Net Interest Income” discussion above, non-refundable loan origination fees, net of direct costs of originating loans, are deferred and amortized over the life of the related loans as adjustments to interest income in accordance with U.S. GAAP.
Occupancy expense includes lease expense on our leased properties and other occupancy-related expenses. Equipment expense includes furniture, fixtures and equipment related expenses.
Professional and other services fees include legal, accounting and consulting fees, card processing fees, and other fees related to our business operations, and include directors’director’s fees and stock-based compensation and regulatory agency fees, such as OCC examination and application fees.
FDIC deposit and business insurance assessments and premiums include deposit insurance, net of any credits applied against these premiums, corporate liability and other business insurance premiums.
Telecommunication and data processing expenses include expenses paid to our third-party data processing system providers and other telecommunication and data service providers.
Depreciation and amortization expense includes the value associated with the depletion of the value on our owned properties and equipment, including leasehold improvements made to our leased properties.
Other operating expenses include advertising, marketing (including our current rebranding)rebranding expenses), community engagement and other operational expenses. Other operating expenses include the incremental cost associated with servicing the large number of shareholders resulting from ourthe spin-off from our Former Parent completedParent. Other operating expenses are partially offset by other operating expenses directly related to the origination of loans, which are deferred and amortized over the life of the related loans as adjustments to interest income in 2018.accordance with U.S. GAAP.
Noninterest expenses generally increase as our business grows and whenever necessary to implement or enhance policies and procedures for regulatory compliance. During the first six monthshalf of 2020 and 2019, we incurred approximately $3.7 million of restructuring expenses whichof approximately $1.7 million and $3.7 million, respectively. In the first half of 2020, restructuring expenses included $0.9$0.4 million and $1.3 million of staff realignmentreduction costs and digital transformation expenses, respectively ($0.9 million and $2.8 million of staff reduction costs and rebranding expenses.costs in the first half of 2019, respectively). Restructuring expenses consist of those incurred for actions designed to implement the Company’s strategy as a new independent company. These actions include, but are not limited to reductions in workforce, streamlining operational processes, rolling out the Amerant brand, implementation of new technology system applications, enhanced sales tools and training, expanded product offerings and improved customer analytics to identify opportunities.
Primary Factors Used to Evaluate Our Financial Condition
The primary factors we use to evaluate and manage our financial condition include asset quality, capital and liquidity.
Asset Quality. We manage the diversification and quality of our assets based upon factors that include the level, distribution and risks in each category of assets. Problem assets may be categorized as classified, delinquent, nonaccrual, nonperforming and restructured assets. We also manage the adequacy of our allowance for loan losses, or the allowance,ALL, the diversification and quality of loan and investment portfolios, the extent of counterparty risks, credit risk concentrations and other factors.
We review and update our allowanceALL for loan loss model at least annually to better reflect our loan volumes, and credit and economic conditions in our markets. The model may differ among our loan segments to reflect their different asset types, and includes qualitative factors, which are updated semi-annually, based on the type of loan.
Capital. Financial institution regulators have established minimum capital ratios for banks and bank holding companies. We manage capital based upon factors that include: (i) the level and quality of capital and our overall financial condition; (ii) the trend and volume of problem assets; (iii) the adequacy of reserves; (iv) the level and
quality of earnings; (v) the risk exposures in our balance sheet under various scenarios, including stressed conditions; (vi) the Tier 1 capital ratio, the total capital ratio, the Tier 1 leverage ratio, and the CET1 capital ratio; and (vii) other factors, including market conditions.
Liquidity. Our deposit base consists primarily of personal and commercial accounts maintained by individuals and businesses in our primary markets and select international core depositors. In recent years, we have increased our fully-insured brokered time deposits under $250,000.$250,000, but remain focused on relationship-driven core deposits. We manage liquidity based upon factors that include the amount of core deposit relationships as a percentage of total deposits, the level of diversification of our funding sources, the allocation and amount of our deposits among deposit types, the short-term funding sources used to fund assets, the amount of non-deposit funding used to fund assets, the availability of unused funding sources, off-balance sheet obligations, the lending pipeline, the amount of cash and liquid securities we hold, the availability of assets readily convertible into cash without undue loss, the characteristics and maturities of our assets when compared to the characteristics of our liabilities and other factors.
Performance HighlightsSummary Results
Performance highlightsThe summary results for the three monthsquarter ended June 30, 20192020 include the following (See(See “Selected Financial Information” for an explanation of non-GAAP financial measures)Non-GAAP Financial Measures Reconciliation):
Net loss of $15.3 million, compared to net income of $12.9 million in the second quartersame period of 2019, 23.4% higher than the $10.4 million reported in the second quarter of 2018, and2019. The net loss compared to net income of $25.9 million for the six months ended June 30, 2019, 30.6% higher than the $19.9 million reported in the six months ended June 30, 2018.
NIM was 2.92% in the second quarter of 2019, up from 2.77% in the second quarter of 2018. NIM was 2.94% for the first six months of 2019, up from 2.72% in the same period of 2018.
Credit quality remained strong. The Company released $1.4 million from the allowancequarter last year was primarily due to higher provision for loan losses in the second quarter of 2019, compared2020 and lower net interest income, offset by higher non-interest income and lower non-interest expenses. Operating income, which excludes provision for income tax, provision for loan losses or reversals and net gains on securities, increased to $21.6 million, up 53.8% from $14.0 million in the same period of 2019.
Net interest income (“NII”) was $46.3 million, down 13.9% from $53.8 million in the same period of 2019. Lower NII is attributed to a $0.2 million provisiondecline in average yields on interest-earning assets, partially offset by higher average interest-earning asset balances and lower deposit and professional funding costs. Net interest margin (“NIM”) was 2.44% in the second quarter of 2018.2020, down from 2.92% in the second quarter 2019.
Credit quality remained sound and reserve coverage is strong despite recent developments associated with one large loan relationship. The Company continues to closely monitor the performance of its loan portfolio estimated to be impacted by the decline in business activity associated with the COVID-19 pandemic, and continues refining its estimated probable loss assumptions. The Company recorded a provision for loan losses of $48.6 million during the second quarter of 2020, compared to a release of $1.4 million during the second quarter of 2019. The ratio of non-performing assetsthe ALL to total assetsloans was 0.41%2.04% as of June 30, 2020, up from 0.99% in the same period last year. In the second quarter of 2020, the ratio of loan charge-offs to average total loans remained at a low level of 0.13%, up from 0.11% in the second quarter of 2019.
Noninterest income was $19.8 million, up 39.6% from $14.1 million in the same period of 2019. The increase over the same quarter of 2019 unchanged comparedwas primarily due to June 30, 2018.higher net gains on the sale of securities in the second quarter of 2020.
Noninterest expense was $36.7 million, down 30.6% from $52.9 million in the second quarter of 2019. The year-over-year decline in noninterest expense was mainly driven by lower salaries and employee benefit expenses attributed to staff reductions completed in 2019 up 0.5% comparedand 2018, lower stock compensation expense in the second quarter of 2020, and the deferral of direct origination costs associated with the Small Business Administration (“SBA”)’s Paycheck Protection Program ("PPP") loans funded during the second quarter of 2020. Non-refundable loan origination fees, net of direct costs of originating loans, are deferred and amortized over the term of the related loans as adjustments to $52.6interest income in accordance with generally accepted accounting principles (GAAP). Additionally, the Company had lower restructuring costs in the second quarter of 2020 related to Amerant’s transformation efforts. Adjusted noninterest expense was $35.4 million in the samesecond quarter of 2018. Noninterest expenses include expenses associated with restructuring activities, including $3.7 million of staff reduction and rebranding costs in the six months ended June 30, 2019. We had non-tax deductible spin-off costs of $6.0 million in the same period of 2018. Adjusted noninterest expense was2020, down 29.4% from $50.2 million in the second quarter of 2019, up 1.5% from $49.42019. Adjusted noninterest expense in the second quarter of 2020 excludes $1.3 million in restructuring expenses, compared $2.7 million in the same quarter of 2018.
The launch of our new “Amerant” brand across all our major markets in April 2019.
Increased customer share of wallet, with sales of interest rate cap and swap products to commercial borrowing customers reaching a record high.last year.
The efficiency ratio was 76.80% (74.11%, as55.6% (53.6% adjusted for rebranding and staff reduction costs) for the six months ended June 30, 2019,restructuring expenses), compared to 79.88% (75.43%, as77.9% (73.8% adjusted for spin-off costs)restructuring expenses) for the corresponding period of 2018.2019. These improvements in the second quarter of 2020 are mainly attributed to the lower noninterest expenses driven by staff reductions, lower stock compensation expense, and the deferral of origination costs associated with PPP loans, as previously explained.
AnnouncedStockholders’ book value per common share increased to $19.69, up 1.8%, from $19.35 at December 31, 2019. Tangible book value per common share increased to $19.18, up 1.8% from $18.84 at December 31, 2019.
Completed the redemptionregistered offering and sale of $25.0$60.0 million senior notes, which bear interest at an annual rate of 5.75% and are due in 2025 (the “Senior Notes”), significantly expanding the Company’s 10.60% and 10.18% trust preferred securities and related junior subordinated debentures. When completed in September 2019, these actions will increase annual pretax net incomeavailable funding sources.
Total loans were $5.9 billion, up $127.9 million , or 2.2%, from $5.7 billion as of December 31, 2019. Total deposits were $6.0 billion, up $267.6 million, or 4.6% from $5.8 billion as of December 31, 2019. These increases are mainly driven by approximately $2.6 million, and the Company’s capital ratios will continue to exceed regulatory minimums.
Added to the Russell 2000® Index in June, which is expected to bolster our recognitionparticipation in the capital markets, and among investors, including those tracking this index.PPP.
Selected Financial Information
The following table sets forth selected financial information derived from our unaudited interim consolidated financial statements for the three and six monthsmonth periods ended June 30, 20192020 and 20182019 and as of June 30, 20192020 and our audited consolidated financial statementstatements as of December 31, 2018.2019. These unaudited interim consolidated financial statements are not necessarily indicative of our results of operations for the year ending December 31, 20192020 or any interim or future period or our financial position at any future date. The selected financial information should be read in conjunction with this Management’s Discussion and Analysis of Financial Condition and Results of Operations and our unaudited interim consolidated financial statements and the corresponding notes included in this Form 10-Q.
| | | June 30, 2019 | | December 31, 2018 | June 30, 2020 | | December 31, 2019 |
(in thousands)
| | |
Consolidated Balance Sheets | | | | | | |
Total assets | $ | 7,926,826 |
| | $ | 8,124,347 |
| $ | 8,130,723 |
| | $ | 7,985,399 |
|
Total investments | 1,650,632 |
| | 1,741,428 |
| 1,674,811 |
| | 1,739,410 |
|
Total net loans (1) | 5,755,351 |
| | 5,858,413 |
| |
Total gross loans (1) | | 5,872,271 |
| | 5,744,339 |
|
Allowance for loan losses | 57,404 |
| | 61,762 |
| 119,652 |
| | 52,223 |
|
Total deposits | 5,819,381 |
| | 6,032,686 |
| 6,024,702 |
| | 5,757,143 |
|
Junior subordinated debentures (2) | 118,110 |
| | 118,110 |
| |
Advances from the FHLB and other borrowings | 1,125,000 |
| | 1,166,000 |
| 1,050,000 |
| | 1,235,000 |
|
Senior notes (2) | | 58,419 |
| | — |
|
Junior subordinated debentures (3) | | 64,178 |
| | 92,246 |
|
Stockholders' equity | 806,368 |
| | 747,418 |
| 830,198 |
| | 834,701 |
|
Assets under management and custody (4) | | 1,715,804 |
| | 1,815,848 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
(in thousands, except per share amounts)
| |
Consolidated Results of Operations | | | | | | | |
Net interest income | $ | 53,789 |
| | $ | 53,989 |
| | $ | 109,226 |
| | $ | 106,622 |
|
(Reversal of) provision for loan losses | (1,350 | ) | | 150 |
| | (1,350 | ) | | 150 |
|
Noninterest income | 14,147 |
| | 14,986 |
| | 27,303 |
| | 28,931 |
|
Noninterest expense | 52,905 |
| | 52,638 |
| | 104,850 |
| | 108,283 |
|
Net income | 12,857 |
| | 10,423 |
| | 25,928 |
| | 19,852 |
|
Effective income tax rate | 21.51 | % | | 35.61 | % | | 21.50 | % | | 26.80 | % |
| | | | | | | |
Common Share Data (3) | | | | | | | |
Tangible stockholders' equity (book value) per common share (4) | $ | 18.18 |
| | $ | 16.43 |
| | $ | 18.18 |
| | $ | 16.43 |
|
Basic earnings per common share | $ | 0.30 |
| | $ | 0.25 |
| | $ | 0.61 |
| | $ | 0.47 |
|
Diluted earnings per common share | $ | 0.30 |
| | $ | 0.25 |
| | $ | 0.60 |
| | $ | 0.47 |
|
Basic weighted average shares outstanding | 42,466 |
| | 42,489 |
| | 42,610 |
| | 42,489 |
|
Diluted weighted average shares outstanding (5) | 42,819 |
| | 42,489 |
| | 42,865 |
| | 42,489 |
|
Cash dividend declared per common share (6) | — |
| | — |
| | — |
| | $ | 0.94 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
(in thousands, except percentages and per share amounts)
| |
Consolidated Results of Operations | | | | | | | |
Net interest income | $ | 46,323 |
| | $ | 53,789 |
| | $ | 95,552 |
| | $ | 109,226 |
|
Provision for (reversal of) loan losses | 48,620 |
| | (1,350 | ) | | 70,620 |
| | (1,350 | ) |
Noninterest income | 19,753 |
| | 14,147 |
| | 41,663 |
| | 27,303 |
|
Noninterest expense | 36,740 |
| | 52,905 |
| | 81,607 |
| | 104,850 |
|
Net (loss) income | (15,279 | ) | | 12,857 |
| | (11,897 | ) | | 25,928 |
|
Effective income tax rate | 20.77 | % | | 21.51 | % | | 20.75 | % | | 21.50 | % |
| | | | | | | |
Common Share Data | | | | | | | |
Stockholders' book value per common share | $ | 19.69 |
| | $ | 18.66 |
| | $ | 19.69 |
| | $ | 18.66 |
|
Tangible stockholders' equity (book value) per common share (5) | $ | 19.18 |
| | $ | 18.18 |
| | $ | 19.18 |
| | $ | 18.18 |
|
Basic (loss) earnings per common share | $ | (0.37 | ) | | $ | 0.30 |
| | $ | (0.28 | ) | | $ | 0.61 |
|
Diluted (loss) earnings per common share (6) | $ | (0.37 | ) | | $ | 0.30 |
| | $ | (0.28 | ) | | $ | 0.60 |
|
Basic weighted average shares outstanding | 41,720 |
| | 42,466 |
| | 41,953 |
| | 42,610 |
|
Diluted weighted average shares outstanding (6) | 41,720 |
| | 42,819 |
| | 41,953 |
| | 42,865 |
|
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 | 2020 | | 2019 | | 2020 | | 2019 |
(in thousands, except per share amounts and percentages)
| | |
Other Financial and Operating Data (7) | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Profitability Indicators (%) | | | | | | | | | | | | | | |
Net interest income / Average total interest earning assets (NIM) (8) | 2.92 | % | | 2.77 | % | | 2.94 | % | | 2.72 | % | 2.44 | % | | 2.92 | % | | 2.55 | % | | 2.94 | % |
Net income / Average total assets (ROA) (9) | 0.66 | % | | 0.50 | % | | 0.66 | % | | 0.47 | % | |
Net income / Average stockholders' equity (ROE) (10) | 6.56 | % | | 5.57 | % | | 6.76 | % | | 5.31 | % | |
Net (loss) income / Average total assets (ROA) (9) | | (0.75 | )% | | 0.66 | % | | (0.30 | )% | | 0.66 | % |
Net (loss) income / Average stockholders' equity (ROE) (10) | | (7.21 | )% | | 6.56 | % | | (2.82 | )% | | 6.76 | % |
| | | | | | | | | | | | | | |
Capital Indicators | | | | | | | | |
Capital Indicators (%) | | | | | | | | |
Total capital ratio (11) | 14.70 | % | | 12.61 | % | | 14.70 | % | | 12.61 | % | 14.34 | % | | 14.70 | % | | 14.34 | % | | 14.70 | % |
Tier 1 capital ratio (12) | 13.85 | % | | 11.67 | % | | 13.85 | % | | 11.67 | % | 13.08 | % | | 13.85 | % | | 13.08 | % | | 13.85 | % |
Tier 1 leverage ratio (13) | 11.32 | % | | 9.87 | % | | 11.32 | % | | 9.87 | % | 10.39 | % | | 11.32 | % | | 10.39 | % | | 11.32 | % |
Common equity tier 1 capital ratio (CET1) (14) | 12.14 | % | | 10.13 | % | | 12.14 | % | | 10.13 | % | 12.13 | % | | 12.14 | % | | 12.13 | % | | 12.14 | % |
Tangible common equity ratio (15) | 9.93 | % | | 8.21 | % | | 9.93 | % | | 8.21 | % | 9.97 | % | | 9.93 | % | | 9.97 | % | | 9.93 | % |
| | | | | | | | | | | | | | |
Asset Quality Indicators (%) | | | | | | | | | | | | | | |
Non-performing assets / Total assets (16) | 0.41 | % | | 0.41 | % | | 0.41 | % | | 0.41 | % | 0.95 | % | | 0.41 | % | | 0.95 | % | | 0.41 | % |
Non-performing loans / Total loans (1) (17) | 0.56 | % | | 0.56 | % | | 0.56 | % | | 0.56 | % | 1.32 | % | | 0.56 | % | | 1.32 | % | | 0.56 | % |
Allowance for loan losses / Total non-performing loans (18) | 175.28 | % | | 201.55 | % | | 175.28 | % | | 201.55 | % | 154.87 | % | | 175.28 | % | | 154.87 | % | | 175.28 | % |
Allowance for loan losses / Total loans (1) (18) | | 2.04 | % | | 0.99 | % | | 2.04 | % | | 0.99 | % |
Net charge-offs / Average total loans (19) | 0.11 | % | | 0.16 | % | | 0.11 | % | | 0.07 | % | 0.13 | % | | 0.11 | % | | 0.11 | % | | 0.11 | % |
| | | | | | | | | | | | | | |
Efficiency Indicators | | | | | | | | |
Efficiency ratio (20) | 77.87 | % | | 76.31 | % | | 76.80 | % | | 79.88 | % | |
Full-time-equivalent employees (FTEs) | 839 |
| | 940 |
| | 839 |
| | 940 |
| |
Efficiency Indicators (% except FTE) | | | | | | | | |
Noninterest expense / Average total assets | | 1.81 | % | | 2.70 | % | | 2.04 | % | | 2.65 | % |
Salaries and employee benefits / Average total assets | | 1.06 | % | | 1.74 | % | | 1.27 | % | | 1.71 | % |
Other operating expenses/ Average total assets (20) | | 0.75 | % | | 0.96 | % | | 0.77 | % | | 0.95 | % |
Efficiency ratio (21) | | 55.60 | % | | 77.87 | % | | 59.47 | % | | 76.80 | % |
Full-Time-Equivalent Employees (FTEs) | | 825 |
| | 839 |
| | 825 |
| | 839 |
|
| | | | | | | | | | | | | | |
Adjusted Selected Consolidated Results of Operations and Other Data (21) | | | | | | | | |
Adjusted Selected Consolidated Results of Operations and Other Data (5) | | | | | | | | |
Adjusted noninterest expense | $ | 50,169 |
| | $ | 49,438 |
| | 101,181 |
| | 102,245 |
| $ | 35,422 |
| | $ | 50,169 |
| | $ | 79,935 |
| | $ | 101,181 |
|
Adjusted net income | 15,005 |
| | 14,142 |
| | 28,808 |
| | 25,831 |
| |
Adjusted earnings per common share (5) | 0.35 |
| | 0.33 |
| | 0.68 |
| | 0.61 |
| |
Adjusted earnings per diluted common share (5) | 0.35 |
| | 0.33 |
| | 0.67 |
| | 0.61 |
| |
Adjusted net income / Average total assets (Adjusted ROA) (8) | 0.77 | % | | 0.67 | % | | 0.73 | % | | 0.61 | % | |
Adjusted net income / Average stockholders' equity (Adjusted ROE) (9) | 7.66 | % | | 7.56 | % | | 7.51 | % | | 6.91 | % | |
Adjusted efficiency ratio (22) | 73.84 | % | | 71.68 | % | | 74.11 | % | | 75.43 | % | |
Adjusted net (loss) income | | (14,234 | ) | | 15,005 |
| | (10,572 | ) | | 28,808 |
|
Operating income | | 21,599 |
| | 14,039 |
| | 38,251 |
| | 30,683 |
|
Adjusted basic (loss) earnings per common share | | (0.34 | ) | | 0.35 |
| | (0.25 | ) | | 0.68 |
|
Adjusted (loss) earnings per diluted common share (6) | | (0.34 | ) | | 0.35 |
| | (0.25 | ) | | 0.67 |
|
Adjusted net (loss) income / Average total assets (Adjusted ROA) (9) | | (0.70 | )% | | 0.77 | % | | (0.26 | )% | | 0.73 | % |
Adjusted net (loss) income / Average stockholders' equity (Adjusted ROE) (10) | | (6.72 | )% | | 7.66 | % | | (2.51 | )% | | 7.51 | % |
Adjusted noninterest expense / Average total assets | | 1.75 | % | | 2.56 | % | | 2.00 | % | | 2.56 | % |
Adjusted salaries and employee benefits / Average total assets | | 1.05 | % | | 1.69 | % | | 1.26 | % | | 1.69 | % |
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
| |
Adjusted other operating expenses/ Average total assets (20 | 0.70 | % | | 0.87 | % | | 0.74 | % | | 0.88 | % |
Adjusted efficiency ratio (22) | 53.61 | % | | 73.84 | % | | 58.26 | % | | 74.11 | % |
__________________ | |
(1) | OutstandingTotal gross loans are net of deferred loan fees and costs and net of the allowance for loan losses. There were no loans held for sale at June 30, 2019 and December 31, 2018.costs. |
| |
(2) | In July 2019,During the second quarter of 2020, the Company called $25.0completed a $60 million offering of its 10.60%Senior Notes with a coupon rate of 5.75%. Senior Notes are presented net of direct issuance cost which is deferred and 10.18% trust preferred securities and related junior subordinated debentures, which will be redeemed by September 2019. amortized over 5 years. |
| |
(3) | During the six months ended June 30, 2020, the Company redeemed $26.8 million of its 8.90% trust preferred securities. The earnings per common share reflectCompany simultaneously redeemed the October 2018 reverse stock split which reduced the number of outstanding shares of each class on a 1-for-3 basis. See Note 15 to the audited consolidation financial statements included in the Form 10-K for more details on the reverse stock split.junior subordinated debentures associated with these trust preferred securities. |
| |
(4) | Assets held for clients in an agency or fiduciary capacity which are not assets of the Company and therefore are not included in the consolidated financial statements. |
| |
(5) | This Non-GAAPpresentation contains adjusted financial information determined by methods other than GAAP. This adjusted financial information is reconciled to GAAP in “Non-GAAP Financial Measures Reconciliation” herein. |
| |
(5) | As of June 30, 2019, potential dilutive instruments included 738,138 unvested shares of restricted stock, including 736,839 shares of restricted stock issued in December 2018 in connection with the Company’s IPO and 1,299 additional shares of restricted stock issued in January 2019. As of June 30, 2019, these 738,138 unvested shares of restricted stock were included in the diluted earnings per share computation because, when the unamortized deferred compensation cost related to these shares was divided by the average market price per share at that date, fewer shares would have been purchased than restricted shares assumed issued. Therefore, at that date, such awards resulted in higher diluted weighted average shares outstanding than basic weighted average shares outstanding in the three and six months ended June 30, 2019, and had a dilutive effect in per share earnings for the three (not shown due to rounding) and six months ended June 30, 2019. We had no outstanding dilutive instruments as of any period prior to December 2018. |
| |
(6) | Special cash dividend of $40.0 million paid to our Former Parent in connection with the spin-off. |
(6 ) As of June 30, 2020 and 2019 potential dilutive instruments consisted of unvested shares of restricted stock and restricted stock units mainly related to the Company’s IPO in 2018, totaling 491,360 and 789,652, respectively. As of June 30, 2020, potential dilutive instruments were not included in the diluted earnings per share computation because the Company reported a net loss and their inclusion would have an antidilutive effect. As of June 30, 2019, potential dilutive instruments were included in the diluted earnings per share computation because, when the unamortized deferred compensation cost related to these shares was divided by the average market price per share at that date, fewer shares would have been purchased than restricted shares assumed issued. Therefore, at that date, such awards resulted in higher diluted weighted average shares outstanding than basic weighted average shares outstanding, and had a dilutive effect in per share earnings.
| |
(7) | Operating data for the three and six month periods ended June 30, 2019 and 2018presented have been annualized. |
| |
(8) | Net interest marginNIM is defined as net interest income divided by average interest-earning assets, which are loans, securities, deposits with banks and other financial assets which yield interest or similar income. |
| |
(9) | Calculated based upon the average daily balance of total assets. |
| |
(10) | Calculated based upon the average daily balance of stockholders’ equity. |
| |
(11) | Total stockholders’ equity divided by total risk-weighted assets, calculated according to the standardized regulatory capital ratio calculations. |
| |
(12) | Tier 1 capital divided by total risk-weighted assets. |
| |
(13) | Tier 1 capital divided by quarter to date average assets. Tier 1 capital is composed of Common Equity Tier 1 (CET 1) capital plus outstanding qualifying trust preferred securities of $62.3 million and $114.1 million at June 30, 20192020 and 2018. $25.0 million of these2019, respectively. See footnote 2 for more information about trust preferred securities will be redeemed by September 2019. See footnote 2.redemption transactions in the first quarter of 2020. |
| |
(14) | Common Equity Tier 1 (CET 1) capital divided by total risk-weighted assets. |
| |
(15) | Tangible common equity is calculated as the ratio of common equity less goodwill and other intangibles divided by total assets less goodwill and other intangible assets. Other intangibles assets are included in other assets in the Company’s consolidated balance sheets. |
| |
(16) | Non-performing assets include all accruing loans past due more than 90 days andor more, all nonaccrual loans, restructured loans that are considered “troubled debt restructurings” or “TDRs”, and OREO properties acquired through or in lieu of foreclosure. Non-performing assets were $32.8$77.3 million and $35.3$32.8 million as of June 30, 20192020 and 2018,2019, respectively. |
| |
(17) | Non-performing loans include all accruing loans 90 days or more past due, by more than 90 days, and all nonaccrual loans.loans and restructured loans that are considered TDRs. Non-performing loans were $32.8$77.3 million and $34.7$32.8 million as of June 30, 20192020 and 2018,2019, respectively. |
| |
(18) | Allowance for loan losses was $57.4$119.7 million and $69.9$57.4 million as of June 30, 2020 and 2019, and 2018, respectively. See Note 5 to our audited consolidated financial statements in our Form 10-K and Note 45 to these unaudited interim consolidated financial statements for more details on our impairment models. |
| |
(19) | Calculated based upon the average daily balance of outstanding loan principal balance net of deferred loan fees and costs, excluding the allowance for loan losses. |
| |
(20) | Other operating expenses is the result of total noninterest expense less salary and employee benefits. |
| |
(21) | Efficiency ratio is the result of noninterest expense divided by the sum of noninterest income and net interest income. |
| |
(21) | This presentation contains adjusted financial information, including adjusted noninterest expenses and the other adjusted items shown, determined by methods other than GAAP. This adjusted financial information is reconciled to GAAP in “Non-GAAP Financial Measures Reconciliation.”
|
| |
(22) | Adjusted efficiency ratio is the efficiency ratio less the effect of restructuring and spin-off costs, described in “Non-GAAP Financial Measures Reconciliation.”Reconciliation” herein. |
Non-GAAP Financial Measures Reconciliation
Certain financial measures and ratios contained in this Form 10-Q, including “adjusted noninterest expense”, “adjusted net (loss) income”, “operating income”, “adjusted earnings per share (basic and diluted)”, “adjusted return on assets (ROA)”, “adjusted return on equity (ROE)”, and other ratios appearing in the tables below are supplemental measures that are not required by, or are not presented in accordance with, U.S. generally accepted
accounting principles (“GAAP”). The following table sets forth selectedCompany refers to these financial informationmeasures and ratios as “non-GAAP financial measures.” The Company’s Non-GAAP financial measures are derived from the Company’s interim unaudited consolidated financial statements, adjusted for certain costs incurred by the Company in the periods presented related to tax deductible restructuring costs.
We use certain non-GAAP financial measures, including those mentioned above, both to explain our results to shareholders and non-deductible spin-off costs. The Companythe investment community and in the internal evaluation and management of our businesses. Our management believes that these adjusted numbersnon-GAAP financial measures and the information they provide are useful to understandinvestors since these measures permit investors to view our performance using the same tools that our management uses to evaluate our past performance and prospects for future performance, especially in light of the additional costs we have incurred in connection with the Company’s restructuring activities that began in 2018 and continued into 2020, and the Company’s increases of its allowance for loan losses and net gains on sales of securities in the three and six months ended June 30, 2020. While we believe that these non-GAAP financial measures are useful in evaluating our performance, absentthis information should be considered as supplemental and not as a substitute for or superior to the related financial information prepared in accordance with GAAP. Additionally, these transactions and events.non-GAAP financial measures may differ from similar measures presented by other companies.
The following table sets forth the Company’s Non-GAAP financial measures.
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands, except per share amounts and percentages)
| 2019 | | 2018 | | 2019 | | 2018 |
Total noninterest expenses | $ | 52,905 |
| | $ | 52,638 |
| | $ | 104,850 |
| | $ | 108,283 |
|
Less: restructuring costs (1): | | | | | | | |
Staff reduction costs | 907 |
| | — |
| | 907 |
| | — |
|
Rebranding costs | 1,829 |
| | — |
| | 2,762 |
| | — |
|
Total restructuring costs | 2,736 |
| | — |
| | 3,669 |
| | — |
|
Less spin-off costs: | | | | | | | |
Legal fees | — |
| | 2,000 |
| | — |
| | 3,000 |
|
Additional contribution to non-qualified deferred compensation plan on behalf of participants to mitigate tax effects of unexpected early distribution due to spin-off (2) | — |
| | 1,200 |
| | — |
| | 1,200 |
|
Accounting and consulting fees | — |
| | — |
| | — |
| | 1,294 |
|
Other expenses | — |
| | — |
| | — |
| | 544 |
|
Total spin-off costs | — |
| | 3,200 |
| | — |
| | 6,038 |
|
Adjusted noninterest expenses | $ | 50,169 |
| | $ | 49,438 |
| | $ | 101,181 |
| | $ | 102,245 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands, except per share amounts)
| 2020 | | 2019 | | 2020 | | 2019 |
Total noninterest expenses | $ | 36,740 |
| | $ | 52,905 |
| | $ | 81,607 |
| | $ | 104,850 |
|
Less: restructuring costs (1): | | | | | | | |
Staff reduction costs | 360 |
| | 907 |
| | 414 |
| | 907 |
|
Digital transformation expenses | 958 |
| | — |
| | 1,258 |
| | — |
|
Rebranding costs | — |
| | 1,829 |
| | — |
| | 2,762 |
|
Total restructuring costs | 1,318 |
| | 2,736 |
| | 1,672 |
| | 3,669 |
|
Adjusted noninterest expenses | $ | 35,422 |
| | $ | 50,169 |
| | $ | 79,935 |
| | $ | 101,181 |
|
| | | | | | | |
Net (loss) income | $ | (15,279 | ) | | $ | 12,857 |
| | $ | (11,897 | ) | | $ | 25,928 |
|
Plus after-tax restructuring costs: | | | | | | | |
Restructuring costs before income tax effect | 1,318 |
| | 2,736 |
| | 1,672 |
| | 3,669 |
|
Income tax effect | (273 | ) | | (588 | ) | | (347 | ) | | (789 | ) |
Total after-tax restructuring costs | 1,045 |
| | 2,148 |
| | 1,325 |
| | 2,880 |
|
Adjusted net (loss) income | $ | (14,234 | ) | | $ | 15,005 |
| | $ | (10,572 | ) | | $ | 28,808 |
|
| | | | | | | |
Net (loss) income | $ | (15,279 | ) | | $ | 12,857 |
| | $ | (11,897 | ) | | $ | 25,928 |
|
Plus: income tax (benefit) expense | (4,005 | ) | | 3,524 |
| | (3,115 | ) | | 7,101 |
|
Plus: provision for (reversal of) loan losses | 48,620 |
| | (1,350 | ) | | 70,620 |
| | (1,350 | ) |
Less: securities gains, net | 7,737 |
| | 992 |
| | 17,357 |
| | 996 |
|
Operating income | $ | 21,599 |
| | $ | 14,039 |
| | $ | 38,251 |
| | $ | 30,683 |
|
| | | | | | | |
Basic (loss) earnings per share | $ | (0.37 | ) | | $ | 0.30 |
| | $ | (0.28 | ) | | $ | 0.61 |
|
Plus: after tax impact of restructuring costs | 0.03 |
| | 0.05 |
| | 0.03 |
| | 0.07 |
|
Total adjusted basic (loss) earnings per common share | $ | (0.34 | ) | | $ | 0.35 |
| | $ | (0.25 | ) | | $ | 0.68 |
|
| | | | | | | |
Diluted (loss) earnings per share (2) | $ | (0.37 | ) | | $ | 0.30 |
| | $ | (0.28 | ) | | $ | 0.60 |
|
Plus: after tax impact of restructuring costs | 0.03 |
| | 0.05 |
| | 0.03 |
| | 0.07 |
|
Total adjusted diluted (loss) earnings per common share | $ | (0.34 | ) | | $ | 0.35 |
| | $ | (0.25 | ) | | $ | 0.67 |
|
|
| | | | | | | | | | | | | | | |
Net income | $ | 12,857 |
| | $ | 10,423 |
| | $ | 25,928 |
| | $ | 19,852 |
|
Plus after-tax restructuring costs: | | | | | | | |
Restructuring costs before income tax effect | 2,736 |
| | — |
| | 3,669 |
| | — |
|
Income tax effect | (588 | ) | | — |
| | (789 | ) | | — |
|
Total after-tax restructuring costs | 2,148 |
| | — |
| | 2,880 |
| | — |
|
Plus after-tax total spin-off costs: | | | | | | | |
Total spin-off costs before income tax effect | — |
| | 3,200 |
| | — |
| | 6,038 |
|
Income tax effect (3) | — |
| | 519 |
| | — |
| | (59 | ) |
Total after-tax spin-off costs | — |
| | 3,719 |
| | — |
| | 5,979 |
|
Adjusted net income | $ | 15,005 |
| | $ | 14,142 |
| | $ | 28,808 |
| | $ | 25,831 |
|
| | | | | | | |
Basic earnings per share | $ | 0.30 |
| | $ | 0.25 |
| | $ | 0.61 |
| | $ | 0.47 |
|
Plus: after tax impact of restructuring costs | 0.05 |
| | — |
| | 0.07 |
| | — |
|
Plus: after tax impact of total spin-off costs | — |
| | 0.08 |
| | — |
| | 0.14 |
|
Total adjusted basic earnings per common share | $ | 0.35 |
| | $ | 0.33 |
| | $ | 0.68 |
| | $ | 0.61 |
|
| | | | | | | |
Diluted earnings per share (4) | $ | 0.30 |
| | $ | 0.25 |
| | $ | 0.60 |
| | $ | 0.47 |
|
Plus: after tax impact of restructuring costs | 0.05 |
| | — |
| | 0.07 |
| | — |
|
Plus: after tax impact of total spin-off costs | — |
| | 0.08 |
| | — |
| | 0.14 |
|
Total adjusted diluted earnings per common share | $ | 0.35 |
| | $ | 0.33 |
| | $ | 0.67 |
| | $ | 0.61 |
|
| | | Three months ended June 30, | | Six Months Ended June 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands, except per share amounts and percentages)
| 2019 | | 2018 | | 2019 | | 2018 | 2020 | | 2019 | | 2020 | | 2019 |
Net income / Average total assets (ROA) | 0.66 | % | | 0.50 | % | | 0.66 | % | | 0.47 | % | |
Net (loss) income / Average total assets (ROA) | | (0.75 | )% | | 0.66 | % | | (0.30 | )% | | 0.66 | % |
Plus: after tax impact of restructuring costs | 0.11 | % | | — | % | | 0.07 | % | | — | % | 0.05 | % | | 0.11 | % | | 0.04 | % | | 0.07 | % |
Plus: after tax impact of total spin-off costs | — | % | | 0.17 | % | | — | % | | 0.14 | % | |
Adjusted net income / Average total assets (Adjusted ROA) | 0.77 | % | | 0.67 | % | | 0.73 | % | | 0.61 | % | |
Adjusted net (loss) income / Average total assets (Adjusted ROA) | | (0.70 | )% | | 0.77 | % | | (0.26 | )% | | 0.73 | % |
| | | | | | | | | | | | | | |
Net income / Average stockholders' equity (ROE) | 6.56 | % | | 5.57 | % | | 6.76 | % | | 5.31 | % | |
Net (loss) income / Average stockholders' equity (ROE) | | (7.21 | )% | | 6.56 | % | | (2.82 | )% | | 6.76 | % |
Plus: after tax impact of restructuring costs | 1.10 | % | | —% |
| | 0.75 | % | | — | % | 0.49 | % | | 1.10 | % | | 0.31 | % | | 0.75 | % |
Plus: after tax impact of total spin-off costs | — | % | | 1.99 | % | | — | % | | 1.60 | % | |
Adjusted net income / Stockholders' equity (Adjusted ROE) | 7.66 | % | | 7.56 | % | | 7.51 | % | | 6.91 | % | |
Adjusted net (loss) income / Average stockholders' equity (Adjusted ROE) | | (6.72 | )% | | 7.66 | % | | (2.51 | )% | | 7.51 | % |
| | | | | | | | |
Noninterest expense / Average total assets | | 1.81 | % | | 2.70 | % | | 2.04 | % | | 2.65 | % |
Less: impact of restructuring costs | | (0.06 | )% | | (0.14 | )% | | (0.04 | )% | | (0.09 | )% |
Adjusted Noninterest expense / Average total assets | | 1.75 | % | | 2.56 | % | | 2.00 | % | | 2.56 | % |
| | | | | | | | |
Salaries and employee benefits / Average total assets | | 1.06 | % | | 1.74 | % | | 1.27 | % | | 1.71 | % |
Less: impact of restructuring costs | | (0.01 | )% | | (0.05 | )% | | (0.01 | )% | | (0.02 | )% |
Adjusted salaries and employee benefits / Average total assets | | 1.05 | % | | 1.69 | % | | 1.26 | % | | 1.69 | % |
| | | | | | | | |
Other operating expenses / Average total assets | | 0.75 | % | | 0.96 | % | | 0.77 | % | | 0.95 | % |
Less: impact of restructuring costs | | (0.05 | )% | | (0.09 | )% | | (0.03 | )% | | (0.07 | )% |
Adjusted other operating expenses / Average total assets | | 0.70 | % | | 0.87 | % | | 0.74 | % | | 0.88 | % |
| | | | | | | | | | | | | | |
Efficiency ratio | 77.87 | % | | 76.31 | % | | 76.80 | % | | 79.88 | % | 55.60 | % | | 77.87 | % | | 59.47 | % | | 76.80 | % |
Less: impact of restructuring costs | (4.03 | )% | | —% |
| | (2.69 | )% | | — | % | (1.99 | )% | | (4.03 | )% | | (1.21 | )% | | (2.69 | )% |
Less: impact of total spin-off costs | — | % | | (4.63 | )% | | — | % | | (4.45 | )% | |
Adjusted efficiency ratio | 73.84 | % | | 71.68 | % | | 74.11 | % | | 75.43 | % | 53.61 | % | | 73.84 | % | | 58.26 | % | | 74.11 | % |
| | | | | | | | | | | | | | |
Stockholders' equity | $ | 806,368 |
| | $ | 719,382 |
| | $ | 806,368 |
| | $ | 719,382 |
| $ | 830,198 |
| | $ | 806,368 |
| | $ | 830,198 |
| | $ | 806,368 |
|
Less: goodwill and other intangibles | (20,969 | ) | | (21,114 | ) | | (20,969 | ) | | (21,114 | ) | (21,653 | ) | | (20,969 | ) | | (21,653 | ) | | (20,969 | ) |
Tangible common stockholders' equity | $ | 785,399 |
| | $ | 698,268 |
| | $ | 785,399 |
| | $ | 698,268 |
| $ | 808,545 |
| | $ | 785,399 |
| | $ | 808,545 |
| | $ | 785,399 |
|
Total assets | 7,926,826 |
| | 8,530,464 |
| | 7,926,826 |
| | $ | 8,530,464 |
| $ | 8,130,723 |
| | $ | 7,926,826 |
| | $ | 8,130,723 |
| | $ | 7,926,826 |
|
Less: goodwill and other intangibles | (20,969 | ) | | (21,114 | ) | | (20,969 | ) | | (21,114 | ) | (21,653 | ) | | (20,969 | ) | | (21,653 | ) | | (20,969 | ) |
Tangible assets | $ | 7,905,857 |
| | $ | 8,509,350 |
| | $ | 7,905,857 |
| | $ | 8,509,350 |
| $ | 8,109,070 |
| | $ | 7,905,857 |
| | $ | 8,109,070 |
| | $ | 7,905,857 |
|
Common shares outstanding | 43,205 |
| | 42,489 |
| | 43,205 |
| | 42,489 |
| 42,159 |
| | 43,205 |
| | 42,159 |
| | 43,205 |
|
Tangible common equity ratio | 9.93 | % | | 8.21 | % | | 9.93 | % | | 8.21 | % | 9.97 | % | | 9.93 | % | | 9.97 | % | | 9.93 | % |
Stockholders' book value per common share | | $ | 19.69 |
| | $ | 18.66 |
| | $ | 19.69 |
| | $ | 18.66 |
|
Tangible stockholders' book value per common share | $ | 18.18 |
| | $ | 16.43 |
| | $ | 18.18 |
| | $ | 16.43 |
| $ | 19.18 |
| | $ | 18.18 |
| | $ | 19.18 |
| | $ | 18.18 |
|
_________
(1) Expenses incurred for actions designed to implement the Company’s strategy as a new independent company. These actions include, but are not limited to costs associated with reductions in workforce, streamlining operational processes, rolling out the Amerant brand, implementation of new technology system applications, enhanced sales tools and training, expanded product offerings and improved customer analytics to identify opportunities.
(2) The spin-off caused an unexpected early distribution for U.S. federal income tax purposes from our deferred compensation plan. This distribution was taxableAs of June 30, 2020 and 2019 potential dilutive instruments consisted of unvested shares of restricted stock and restricted stock units mainly related to plan participants as ordinary income during 2018. We partially compensated plan participants,the Company’s IPO in 2018, totaling 491,360 and 789,652, respectively. As of June 30, 2020, potential dilutive instruments were not included in the aggregate amount of $1.2 million, fordiluted earnings per share computation because the higher tax expense they incurred asCompany reported a result of the distribution increasing the plan participants' estimated effective federal income tax rates by recording a contribution to the plan on behalf of its participants. The after tax net effect of this $1.2 million contribution for the period ended June 30, 2018, was approximately $952,000. As a result of the early taxable distribution to plan participants, we expensedloss and deducted for federal income tax purposes, previously deferred compensation of approximately $8.1 million, resulting intheir inclusion would have an estimated tax credit of $1.7 million, which exceeded the amount of the tax gross-up paid to plan participants.
| |
(3) | Calculated based upon the estimated annual effective tax rate for the periods, which excludes the tax effect of discrete items, and the amounts that resulted from the permanent difference between spin-off costs that are non-deductible for Federal and state income tax purposes, and total spin-off costs recognized in the consolidated financial statements. The estimated annual effective rate applied for the calculation differs from the reported effective tax rate since it is based on a different mix of statutory rates applicable to these expenses and to the rates applicable to the Company and its subsidiaries. |
(4) anti-dilutive effect. As of June 30, 2019, potential dilutive instruments included 738,138 unvested shares of restricted stock, including 736,839 shares of restricted stock issued in December 2018 in connection with the Company’s IPO and 1,299 additional shares of restricted stock issued in January 2019. As of June 30, 2019, these 738,138 unvested shares of restricted stock were included in the diluted earnings per share computation because, when the unamortized deferred compensation cost related to these shares was divided by the average market price per share at that date, fewer shares would have been purchased than restricted shares assumed issued. Therefore, at that date, such awards resulted in higher diluted weighted average shares outstanding to be higher than basic weighted average shares outstanding, in the three and six months ended June 30, 2019, and had a dilutive effect in per share earnings in the three (not shown due to rounding) and six months ended June 30, 2019. We had no outstanding dilutive instruments as of any period prior to December 31, 2018.earnings.
55
Results of Operations - Comparison of Results of Operations for the Three and Six Month Periods Ended June 30, 20192020 and 20182019
Net (loss) income
The table below sets forth certain results of operations data for the three and six monthsmonth periods ended June 30, 20192020 and 2018:2019: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Change | | Six Months Ended June 30, | | Change |
(in thousands, except per share amounts and percentages) | 2019 | | 2018 | | 2019 vs 2018 | | 2019 | | 2018 | | 2019 vs 2018 |
Net interest income | $ | 53,789 |
| | $ | 53,989 |
| | $ | (200 | ) | | (0.4 | )% | | $ | 109,226 |
| | $ | 106,622 |
| | $ | 2,604 |
| | 2.4 | % |
(Reversal of) provision for loan losses | (1,350 | ) | | 150 |
| | (1,500 | ) | | N/M |
| | (1,350 | ) | | 150 |
| | (1,500 | ) | | N/M |
|
Net interest income after (reversal of) provision for loan losses | 55,139 |
| | 53,839 |
| | 1,300 |
| | 2.4 | % | | 110,576 |
| | 106,472 |
| | 4,104 |
| | 3.9 | % |
Noninterest income | 14,147 |
| | 14,986 |
| | (839 | ) | | (5.6 | )% | | 27,303 |
| | 28,931 |
| | (1,628 | ) | | (5.6 | )% |
Noninterest expense | 52,905 |
| | 52,638 |
| | 267 |
| | 0.5 | % | | 104,850 |
| | 108,283 |
| | (3,433 | ) | | (3.2 | )% |
Net income before income tax | 16,381 |
| | 16,187 |
| | 194 |
| | 1.2 | % | | 33,029 |
| | 27,120 |
| | 5,909 |
| | 21.8 | % |
Income tax | (3,524 | ) | | (5,764 | ) | | 2,240 |
| | (38.9 | )% | | (7,101 | ) | | (7,268 | ) | | 167 |
| | (2.3 | )% |
Net income | $ | 12,857 |
| | $ | 10,423 |
| | $ | 2,434 |
| | 23.4 | % | | $ | 25,928 |
| | $ | 19,852 |
| | $ | 6,076 |
| | 30.6 | % |
Basic earnings per common share | $ | 0.30 |
| | $ | 0.25 |
| | $ | 0.05 |
| | 20.0 | % | | $ | 0.61 |
| | $ | 0.47 |
| | $ | 0.14 |
| | 29.8 | % |
Diluted earnings per common share(1) | $ | 0.30 |
| | $ | 0.25 |
| | $ | 0.05 |
| | 20.0 | % | | $ | 0.60 |
| | $ | 0.47 |
| | $ | 0.13 |
| | 27.7 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Change | | Six Months Ended June 30, | | Change |
(in thousands, except per share amounts and percentages) | 2020 | | 2019 | | 2020 vs 2019 | | 2020 | | 2019 | | 2020 vs 2019 |
Net interest income | $ | 46,323 |
| | $ | 53,789 |
| | $ | (7,466 | ) | | (13.9 | )% | | $ | 95,552 |
| | $ | 109,226 |
| | $ | (13,674 | ) | | (12.5 | )% |
Provision for (reversal of) loan losses | 48,620 |
| | (1,350 | ) | | 49,970 |
| | N/M |
| | 70,620 |
| | (1,350 | ) | | 71,970 |
| | N/M |
|
Net interest income (loss) after provision for (reversal of) loan losses | (2,297 | ) | | 55,139 |
| | (57,436 | ) | | (104.2 | )% | | 24,932 |
| | 110,576 |
| | (85,644 | ) | | (77.5 | )% |
Noninterest income | 19,753 |
| | 14,147 |
| | 5,606 |
| | 39.6 | % | | 41,663 |
| | 27,303 |
| | 14,360 |
| | 52.6 | % |
Noninterest expense | 36,740 |
| | 52,905 |
| | (16,165 | ) | | (30.6 | )% | | 81,607 |
| | 104,850 |
| | (23,243 | ) | | (22.2 | )% |
(Loss) income before income tax | (19,284 | ) | | 16,381 |
| | (35,665 | ) | | (217.7 | )% | | (15,012 | ) | | 33,029 |
| | (48,041 | ) | | (145.5 | )% |
Income tax benefit (expense) | 4,005 |
| | (3,524 | ) | | 7,529 |
| | (213.7 | )% | | 3,115 |
| | (7,101 | ) | | 10,216 |
| | (143.9 | )% |
Net (loss) income | $ | (15,279 | ) | | $ | 12,857 |
| | $ | (28,136 | ) | | (218.8 | )% | | $ | (11,897 | ) | | $ | 25,928 |
| | $ | (37,825 | ) | | (145.9 | )% |
Basic (loss) earnings per common share | $ | (0.37 | ) | | $ | 0.30 |
| | $ | (0.67 | ) | | (223.3 | )% | | $ | (0.28 | ) | | $ | 0.61 |
| | $ | (0.89 | ) | | (145.9 | )% |
Diluted (loss) earnings per common share (1) | $ | (0.37 | ) | | $ | 0.30 |
| | $ | (0.67 | ) | | (223.3 | )% | | $ | (0.28 | ) | | $ | 0.60 |
| | $ | (0.88 | ) | | (146.7 | )% |
__________________
| |
(1) | At June 30, 2020 and 2019,, potential dilutive instruments consistconsisted of 738,138 unvested shares of restricted stock. We had no outstanding dilutive instruments at June 30, 2018. stock and restricted stock units totaling491,360 and 789,652, respectively, mainly related to the Company’s IPO in 2018. See Note 1417 to our unaudited interim financial statements in this Form 10-Q for details on the dilutive effects of the issuance of restricted stock and restricted stock units on earnings per share for the three and six months month periods ended June 30, 2019.2020 and 2019. |
N/M NotMeans not meaningful
Three Months Ended June 30, 20192020 and 20182019
NetIn the second quarter of 2020, we reported a net loss of $15.3 million, or $0.37 loss per share, compared to a net income of $12.9 million, or $0.30 earnings per diluted share, in the three months ended June 30, 2019 represents an increase of $2.4 million, or 23.4% compared to the same quarter of 2018. Higher2019. The decrease of $28.1 million, or 218.8%, in net income during the three months ended June 30, 2019 was mainly the result of: (i) the $1.4$48.6 million reversal of provision for loan losses in the second quarter of 2019,2020, primarily due to the estimated probable losses reflecting deterioration of our loan portfolio due to the COVID-19 pandemic and specific reserves requirements on a commercial loan relationship, and (ii) no non-deductible spin off costs in the second quarter of 2019, and a normalized lower tax rate of 21.51%. These results werenet interest income. This was partially offset by: (i) lower noninterest income;expenses mainly due to lower salaries and employee benefits and lower other operating expenses, and (ii) higher noninterest expensesincome driven by rebranding expenses and staff reduction costs related to our various restructuring activities and an additional compensation expense$7.5 million of $1.5 millionnet gains on the sale of securities recognized in connection with the amortizationsecond quarter of restricted stock awards granted in December 2018 and January 2019; and (iii) lower net interest income.2020.
Net interest income declined from $54.0to $46.3 million in the three months ended June 30, 2018, to2020 from $53.8 million in the three months ended June 30, 2019. The slight decrease of $0.2$7.5 million, or 0.4%13.9%, was primarily due to higher cost of time deposits. We expect that the costs of new deposits and income on loans and new variable rate investments may decrease with thea decline in market interest rates. Changes inaverage yields on interest-earning assets. This was partially offset by higher average interest-earning asset balances and lower deposit rates may also lag the change in interest rates on our loans and investments.professional funding costs.
Noninterest income decreased $0.8increased to $19.8 million in the three months ended June 30, 2019 compared to the same period one year ago, mainly due to lower income2020 from brokerage, advisory and fiduciary activities, lower fees from administrative and transition services to our Former Parent, and the $0.9$14.1 million gain realized in the second quarter of 2018 related to the early termination of advances from the FHLB. This was partially offset by a $1.0 million gain on the sale of municipal bonds in the second quarter of 2019.
Noninterest expenses increased $0.3 million, or 0.5%, in the three months ended June 30, 2019 compared2019. The increase of $5.6 million, or 39.6%, is mainly due to $7.5 million of net gains on the sale of 30-year Treasury securities recognized in the second quarter of 2020, in addition to higher other noninterest income and higher brokerage, advisory and fiduciary fees. These results were partially offset by: (i) lower cards and trade finance servicing fees; (ii) lower deposits and service fees and (iii) the absence of data processing and fees for other services previously provided to the same period one year ago, mainly as a resultCompany’s Former Parent and its affiliates.
Noninterest expenses decreased to $36.7 million in the three months ended June 30, 2020 from $52.9 million in the three months ended June 30, 2019. The decrease of higher other operating expenses$16.2 million, or 30.6%, is primarily driven by rebranding and staff reduction expenses. This was partially offset by lower professional and other services fees as well asby: (i) lower salaries and employee benefits, mainly driven by staff reductions in 2018 and 2019, lower stock-based compensation expense and, the deferral of $7.8 million of expenses directly related to origination of loans under the PPP program in accordance with GAAP, and (ii) lower other operating expenses mainly due to no spin-offthe absence of rebranding costs in the second quarter of 2019. The decrease in salaries and employee benefits were partially offset by an additional compensation expense of $1.5 million in connection with restricted stock awards granted in December 2018 and January 2019 and higher staff reduction costs.2020. In the three months ended June 30, 20192020 and 2018,2019, noninterest expense included $1.3 million and $2.7 million, respectively, in restructuring costs, consisting primarily of rebranding and staff reduction costs and $3.2 milliondigital transformation expenses in spin-offthe three months ended June 30, 2020, and staff reduction and rebranding costs respectively.in the three months ended June 30, 2019. The Company did not implement any staffing changes in the three months ended June 30, 2020 related to the COVID-19 pandemic.
Adjusted net incomeloss for the quarterthree months ended June 30, 20192020 was $14.2 million compared to an adjusted net income of $15.0 million 6.1% higher thanin the same quarter one year ago.three months ended June 30, 2019. Adjusted net (loss) income excludes restructuring costs of $1.3 million and $2.7 million in the three months ended June 30, 2020 and 2019, and spin-off costs of $3.2respectively. Operating income increased to $21.6 million in the same period one year ago.three months ended June 30, 2020 compared to $14.0 million in the three months ended June 30, 2019. Operating income excludes provisions for loan losses or reversals, net gains on securities and income tax expense or benefit. See “Non-GAAP Financial Measures Reconciliation” for a reconciliation of these non-GAAP financial measures to their U.S. GAAP counterparts.
Six Months Ended June 30, 20192020 and 20182019
NetIn the first half of 2020, we reported a net loss of $11.9 million, or $0.28 loss per share, compared to net income of $25.9 million, or $0.61$0.60 earnings per diluted share, in the six months ended June 30, 2019 represents an increase of $6.1 million, or 30.6%, compared to the same period of 2018. Higher2019. The decrease of $37.8 million, or 145.9%, in net income during the six months ended June 30, 2019 was mainly the result of: (i) increased net interest income driven by higher yields, (ii) a $1.4the $70.6 million reversal of provision for loan losses in the first half of 20192020, primarily due to the estimated probable losses reflecting deterioration of our loan portfolio due to the COVID-19 pandemic and (iii)specific reserves requirements on a commercial loan relationship and (ii) lower net interest income. This was partially offset by: (i) lower noninterest expenses mainly due to lower salaries and employee benefits and lower other operating expenses, and (ii) higher noninterest income driven by no spin-off costs duringan increase of $15.8 million in net gains on the sale of securities recognized in the first half of 2019. These results were partially offset by: (i) higher other operating expenses, mainly rebranding expenses (ii) an additional compensation expense of $3.0 million in connection with restricted stock awards granted in December 2018 and January 2019, (iii) staff reduction costs related2020 compared to our various restructuring activities, and (iv) lower noninterest income mainly due to a decrease in brokerage, advisory and fiduciary fees.2019.
Net interest income improved from $106.6declined to $95.6 million in the six months ended June 30, 2018, to2020 from $109.2 million in the six months ended June 30, 2019,2019. The decrease of $13.7 million, or 12.5%, was primarily due to a decline in average yields on interest-earning assets. This was partially offset by a decline in the average rate paid on total interest bearing liabilities, including total deposits, FHLB advances and trust preferred securities. The decrease in average rates paid on total interest bearing liabilities was partially offset by an increase in the average balance of $2.6time deposits.
Noninterest income increased $14.4 million, or 2.4%52.6%, in the six months ended June 30, 2020 compared to the six months ended June 30, 2019, mainly due to an increase of $15.8 million in market rates duringnet gains on the sale of securities in the first half of 2020 compared to the same period last year, higher brokerage, advisory and remixingfiduciary fees and higher other noninterest income. These results were partially offset by: (i) lower cards and trade finance servicing fees; (ii) lower deposits and service fees; (iii) the absence of data processing and fees for other services previously provided to the Former Parent and its affiliates, and (iv) the absence of the loan portfolio.$0.6 million gain on early extinguishment of FHLB advances in the first half of 2019.
Noninterest expenses decreased $23.2 million, or 22.2%, in the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily driven by: (i) lower salaries and employee benefits, mainly driven by staff reductions in 2018 and 2019 and lower stock-based compensation expense, and the deferral of $7.8 million of expenses directly related to origination of loans under the PPP program in accordance with GAAP, and (ii) lower other operating expenses mainly due to the absence of rebranding costs in the first half of 2020 compared to the same period the previous year. In the six months ended June 30, 2020 and 2019, noninterest expense included $1.7 million and $3.7 million, respectively, in restructuring costs, consisting primarily of staff reduction costs and digital transformation expenses in the six months ended June 30, 2020, and staff reduction and rebranding costs in the six months ended June 30, 2019. The Company did not implement any staffing changes in the six months ended June 30, 2020 related to the COVID-19 pandemic.
Adjusted net loss for the six months ended June 30, 2020 was $10.6 million compared to an adjusted net income decreased $1.6of $28.8 million in the same period of 2019. Adjusted net (loss) income excludes restructuring costs of $1.7 million and $3.7 million in the six months ended June 30, 2020 and 2019, compared to the same period one year ago, primarily due to lowerrespectively. Operating income from brokerage, advisory and fiduciary activities, lower deposit and service fees, and lower fees from administrative and transition services to our Former Parent, all but one of which terminated by May 31, 2019. This was partially offset by a $1.0$38.3 million gain on the sale of municipal bonds in the second quarter of 2019.
Noninterest expenses decreased $3.4 million, or 3.2%, infor the six months ended June 30, 2019 compared to2020, up 24.7% from $30.7 million in the same period one year ago. This was mainly the result of lower professional and other services fees as well as lower salaries and employee benefits primarily due to no spin-off costs in the first half of 2019. These results were partially offset by: (i) higher other operating expenses mainly dueOperating income excludes provisions for loan losses or reversals, net gains on securities and income tax expense or benefit. See “Non-GAAP Financial Measures Reconciliation” for a reconciliation of these non-GAAP financial measures to rebranding, (ii) an additional compensation expense of $3.0 million in connection with restricted stock awards granted in December 2018 and January 2019, and (iii) staff reduction costs related to our various restructuring activities. In the six months ended June 30, 2019 and 2018, noninterest expense included $3.7 million in restructuring costs, consisting primarily of rebranding and staff reduction costs, and $6.0 million in spin-off costs, respectively.their U.S. GAAP counterparts.
Net interest income
Three Months Ended June 30, 20192020 and 20182019
In the second quarter of 2019,three months ended June 30, 2020, we earned $53.8$46.3 million of net interest income, a decline of $0.2$7.5 million, or 0.4%13.9%, from $54.0$53.8 million of net interest income earned in the same period of 2018.2019. The slight decrease in net interest income was primarily driven by a 6.2%91 basis point decline in the average yield on interest-earning assets resulting from the Federal Reserve decreasing the benchmark interest rate three times in 2019 plus the full effect of lower market rates on variable-rate loans following the emergency rate cuts implemented by the Federal Reserve during March 2020. These results were partially offset by: (i) a decrease of 50 basis points in average rates paid on total interest bearing liabilities mainly driven by lower costs of deposits and FHLB advances as well as lower interest expense due to the redemption of trust preferred securities in the third quarter of 2019 and first quarter of 2020 and (ii) a 3.2% increase in the average balance of interest-earning assets and an increase of 33 basis points in average rates paid on interest bearing liabilities mainly due to higher loan balances and higher cash balances at the higher cost of time deposits. This was partially offset by a 38 basis points improvement in the average yield on interest-earning assets mainly due to a higher yielding loan mix and a 7.6% decrease in average interest-bearing liabilities.Federal Reserve. Net interest margin improved 15decreased 48 basis points to 2.44% in the three months ended June 30, 2020 from 2.77%2.92% in the three months ended June 30, 2019.
While the current COVID-19 pandemic interest rate environment and the potential runoff of the Company’s low-cost foreign deposits will continue to pressure NII and NIM, the Company is taking decisive action to manage these headwinds. Specifically, in the second quarter of 20182020, the Company continued to 2.92% in the same period of 2019. The increase in the net interest margin was mainly driven by the Company’s continued focus on higher-yielding domestic relationship loans.
Our net interest incomeactively implement and NIM are expected to remain pressured as lower market interest rates are forecast for the rest of 2019. We expect that the costs of new deposits and income on loans may decrease with declining market interest rates. Changes in deposit rates may also lag the changes in interest rates on our loans and investments.
The Company continues taking steps to reduce NIM compression from declining marketmanage floor rates in the coming quarters by establishing floorsloan portfolio, aggressively reprice deposits, leverage low-cost wholesale funding opportunities, maximize high-yield investments, and seek to reduce asset sensitivity. Importantly, in April 2020, the Company modified maturities on term sheets on new loan originations, decreasing rates on time deposits$420.0 million fixed-rate FHLB advances, resulting in 26 bps of annual savings for this portfolio representing an estimated $2.4 million of cost savings for the remainder of 2020. See — Capital Resources and increasingly relying on pricing intelligence, focusing on relationship accountsLiquidity Management for detailed information. The Company will continue to stabilize costtake steps to mitigate the current interest rate environment and continued runoff of funds, rationalizing special rates paid to top customers, and shifting towards shorter-term professional funding. foreign deposits.
On July 10,31, 2019 and September 7, 2019, the Company announced the redemptionredeemed all $10.0 million of its outstanding 10.18% trust preferred securities issued by its Commercebank Capital Trust III subsidiary (“Capital Trust III”), and all $15.0 million of its outstanding 10.60% trust preferred securities issued by its Commercebank Statutory Trust II subsidiary (“Statutory Trust II”), and. On January 30, 2020, the Company redeemed all $10.0$26.8 million of its outstanding 10.18%8.90% trust preferred capital securities issued by its Commercebank Capital Trust IIII (“Capital Trust III”I”). These redemptions are expected to reduce the Company’s annual pretax interest expense by approximately $2.6$5.0 million. See “—Capital Resources and Liquidity Management” for detailed information. Additionally, on August 8, 2019 the Company
entered into five interest rate swap contracts with notional amounts totaling $64.2 million, whichthat were designed as cash flow hedges, designated to manage the exposure to changes inof floating interest rates in cash flows associated withpayments on all of the Company’s variable-rate junior subordinated debentures, and as a result, decrease its interest expense due todebentures. These cash flow hedges took advantage of the currently inverted yield curve.curve to reduce the Company’s interest expense. The Company will continue to explore the use of hedging activities to manage its interest rate exposure.risk.
Interest Income. Total interest income was $79.2$64.2 million in the second quarter of 2019three months ended June 30, 2020, compared to $75.9$79.2 million for the same period of 2018.2019. The $3.3$15.1 million, or 4.4%19.0%, increasedecline in total interest income was primarily due to higher averagea decline in yields earned onof interest-earning assets dueas result of the aforementioned Federal Reserve’s reductions to higher yielding loan mix. These improvements werethe benchmark interest rate in 2019 plus the previously mentioned emergency rate cuts in March 2020. This was partially offset by a decreasehigher average balances of interest-earning assets driven by higher loan balances mainly due to PPP loans originated in the average balance of loans, available for sale securities and interest earning deposits with other banks during the second quarter of 2019 with respect to2020 and higher cash balances at the same period of 2018. Federal Reserve. See “—Average Balance Sheet, Interest and Yield/Rate Analysis” for detailed information.
Interest income on loans in the second quarter of 2019three months ended June 30, 2020 was $66.8$53.5 million compared to $62.4$66.8 million for the comparable period of 2018.2019. The $4.4$13.3 million, or 7.0%19.9%, increasedecrease was primarily due to a 4498 basis point increasedecline in average yieldsyields. This was partially offset by a 4.2% decreasean increase of 1.3% in the average balance of loans in the second quarter of 20192020 over the same period in 2018. In2019, mainly attributable to the PPP loans originated in the second quarter of 2019, the increase in average yields reflects the Company’s continued focus on higher-yielding domestic loans. 2020. See “—Average Balance Sheet, Interest and Yield/Rate Analysis” for detailed information.
Interest income on the available for sale debt securities portfolio decreased $0.9 million, or 8.4%8.7%, to $10.3$9.3 million in the second quarter of 2019three months ended June 30, 2020 compared to $11.3$10.2 million in the same period of 2018.2019. This was mainly due to a 30 basis point decline of 8.5% in the average volume of securities available for sale accompanied with a 2 basis points decrease in the average yields inyields. In the second quarter of 2019 with respect2020, prepayments on mortgage-related securities stabilized following a surge in expected prepayments during the first quarter of 2020. Still, we continued to focus on decreasing floating rate investments, given the samecurrent interest rate environment. As of the end of the second quarter of 2020, floating rate investments represented 16.9% of our portfolio, down from 17.9% in 2018.the year ago period. During the second quarter of 2019, we completed2020, the sale of approximately $91.2Company purchased $53.0 million in municipal bonds.higher yielding fixed-rate corporate debt, primarily in the subordinated financial institution sector.
Interest Expense. Interest expense on total interest-bearing liabilities increased $3.5decreased $7.6 million, or 16.0%29.9%, to $25.4$17.8 million in the second quarter of 2019three months ended June 30, 2020 compared to $21.9$25.4 million in the same period of 2018,2019, primarily due to higher rates paid on total deposits, mainly time deposits, partially offset by lower average balancescost of total deposits and FHLB advances, fromas well as lower interest expense due to the FHLB.aforementioned redemptions of trust preferred securities in 2019 and the first quarter of 2020.
Interest expense on deposits increaseddecreased to $17.1$14.1 million in the second quarter of 2019three months ended June 30, 2020 compared to $13.4$17.1 million for the same period of 2018.2019. The $3.7$3.0 million, or 27.4%17.4%, increasedecrease was primarily due to a 3724 basis points increasepoint decline in the average rates paid on deposits, mainly due to higher cost of time deposits, partially offset by a lowerhigher average balance of total deposits, which decreased 7.5%.primarily time deposits. Average total time deposits decreasedincreased by $56.5$169.6 million, or 2.4%7.3%, mainly as a result our strategic decision to decrease the promotional interest rates we paid. We continue to focusof our efforts to retain customers with higher probabilities of renewal at lower-than-market rates. Also, we have implemented a strategy for renewing customer’s certificates ofcapture online deposits. Average online deposits (“CDs”) with lower probability of renewals through our promotions. As a result, we were ableincreased by $143.2 million, or 188.4%, to renew approximately $211.2$219.2 million in CDsthe second quarter of 2020 compared to $76.0 million in the first halfsecond quarter of 2019 at rates that were2019. The increase in average time deposits was partially offset by lower than the highest rates paid in our markets. Averageaverage total checking and savings account balances which for the second quarter of 2020 decreased year-on-year by $353.9$165.0 million, or 11.5%6.1%, primarily due to a decline of $448.8$197.9 million, or 17.1%9.0%, in the average balance of international accounts, partially offset by higher average domestic customer deposits. The decline in average international accounts includes $84.8a decrease of $213.2 million, or 21.0%11.5%, in personal accounts partially offset by an increase of $15.3 million, or 4.6%, in commercial accounts and $364.0 million, or 16.4%, in personal accounts. The overall decline in average balance of international commercial and personal accounts is primarily due to the continued utilization of deposits from our Venezuelan resident customers spending their U.S. Dollar savings. As livingto fund everyday expenses, as challenging conditions in Venezuela remain difficult, thosetheir country persist. In the second quarter of 2020, the pace of utilization of deposits from our Venezuelan customers continueddeclined mainly due to rely onlower economic activity in their U.S. Dollar depositscountry currently attributable to fund daily living expenses.the COVID-19 pandemic.
Interest expense on FHLB advances and other borrowings decreased by $0.2$3.2 million, or 3.4%50.6%, in the second quarter of 2019 with respectthree months ended June 30, 2020 compared to the same period of 2018. This was the2019, mainly as a result of a 8.6% decline in the average balance outstanding, partially offset by an increasedecrease of 11127 basis points in the average rate paid on of these borrowings. This reduction in rates, includes the effect of the aforementioned $420 million in FHLB advances restructuring at the beginning of the second quarter of 2020. These results were
partially offset by an increase of $91.0 million, or 8.5%, in the average balance outstanding in the three months ended June 30, 2020 compared to the same period in 2019.
Interest expense on junior subordinated debentures decreased by $1.5 million, or 72.7%, in the three months ended June 30, 2020 compared to the same period last year, mainly driven by a decline of $53.9 million, or 45.7%, in the average balance outstanding in connection with the redemption of trust preferred securities issued by the Capital Trust III, Statutory Trust II, and Capital Trust I and related subordinated debt, previously discussed.
During the second quarter of 2020, we completed a $60.0 million offering of Senior Notes with a fixed-rate coupon of 5.75%. See “—Capital Resources and Liquidity Management” for detailed information.
Six Months Ended June 30, 20192020 and 20182019
In the six months ended June 30, 2019,2020, we earned $109.2$95.6 million of net interest income, an increasea decline of $2.6$13.7 million, or 2.4%12.5%, from $106.6$109.2 million of net interest income earned in the same period of 2018.2019. The increasedecrease in net interest income was due primarily todriven by a 5168 basis points improvementpoint decline in the average yield on interest-earning assets due to an increaseresulting from the Federal Reserve decreasing the benchmark interest rate three times in market rates since the comparable period in 2018 and the changing mix2019 plus a full quarter of the loan portfolio to include higher-rate domestic loans. Also, there was a 5.8% decreaserepricing effect of the Federal Reserve's emergency rate cuts in average interest-bearing liabilities.March 2020. These results were partially offset by a 5.04% decrease of 32 basis points in average rates paid on total interest bearing liabilities mainly driven by lower costs of total deposits and FHLB advances, as well as lower interest expense due to the redemption of trust preferred securities in the third quarter of 2019 and first quarter of 2020. The decrease in average rates paid on total interest bearing liabilities was partially offset by an increase in the average balance of interest-earning assets and an increase of 37 basis points in average rates paid.time deposits. Net interest margin improved 22decreased 39 basis points from 2.72%to 2.55% in the first half of 2018 tothree months ended June 30, 2020 from 2.94% in the same period ofthree months ended June 30, 2019.
Interest Income. Total interest income was $159.5$135.5 million in the first half of 2019three months ended June 30, 2020, compared to $147.8$159.5 million for the same period of 2018.2019. The $11.7$24.1 million, or 7.9%15.1%, increasedecline in total interest income was primarily due to higher averagea decline in yields earned onof interest-earning assets due to an increase in market rates since the comparable period in 2018 and the changing mixas result of the loan portfolio to include higher-rate domestic loans. These improvements were partially offset by a decrease in the average balance of loans and available for sale securities during the first half of 2019 with respectaforementioned Federal Reserve’s reductions to the same period of 2018. benchmark interest rate in 2019 plus the previously mentioned emergency rate cuts in March 2020. See “—Average Balance Sheet, Interest and Yield/Rate Analysis” for detailed information.
Interest income on loans in the six months ended June 30, 20192020 was $133.5$113.3 million compared to $122.1$133.5 million for the comparable period of 2018.2019. The $11.4$20.3 million, or 9.3%15.2%, increasedecrease was primarily due to a 5670 basis point increasedecline in average yields, due to the increase in market rates and the aforementioned change in the loan portfolio mix, partially offset byyields. In addition, there was a 3.9%$31.5 million, or 0.6%, decrease in the average balance of loans in the first half of 20192020 over the same period in 2018. In2019, mainly as a result of the six months ended June 30,strategic run-off of foreign financial institution loans and non-relationship syndicated national credit loans. The decline in the average balance of loans in the first half of 2020 compared to the same period in 2019 was partially offset by PPP loans originated in the increase in average yields reflects the Company’s continued focus on higher-yielding domestic loans. second quarter of 2020. See “—Average Balance Sheet, Interest and Yield/Rate Analysis” for detailed information.
Interest income on the available for sale debt securities portfolio decreased $0.3$2.1 million, or 1.6%10.2%, to $21.2$18.8 million in the six months ended June 30, 20192020 compared to $21.5$20.9 million in the same period of 2018.2019. This was mainly due to a decline of 7.8% in the average volume of securities available for sale partially offset by an increase of 1834 basis pointspoint decline in the average yields, which includes the effect of the aforementioned surge in prepayments on mortgage-related securities in the first quarter of 2020. During the first half of 2019 with respect to2020, the same periodCompany purchased $94.6 million in 2018.higher yielding fixed-rate corporate debt, primarily in the subordinated financial institution sector.
Interest Expense. Interest expense on total interest-bearing liabilities increased $9.1decreased $10.4 million, or 22.0%20.6%, to $50.3$39.9 million in the first half of 2019six months ended June 30, 2020 compared to $41.2$50.3 million in the same period of 2018,2019, primarily due to higher yields on totallower cost of FHLB advances and deposits, and higher average balancelower interest expense due to the aforementioned redemptions of time deposits, partially offset bytrust preferred securities, and lower average balances of total checkinginterest-bearing liabilities. The decrease in average rates paid and saving accounts and advances fromaverage balances of total interest bearing liabilities was partially offset by an increase in the FHLB.average balance of time deposits.
Interest expense on deposits increaseddecreased to $33.6$31.0 million in the the six months ended June 30, 20192020 compared to $24.8$33.6 million for the same period of 2018.2019. The $8.9$2.7 million, or 35.8%7.9%, increasedecrease was primarily due to a 418 basis points increasepoint
decline in the average rates paid on deposits and a 1.9% increase inlower average timetotal deposits. Lower average total deposits include lower checking and savings account balances partially offset by lower averagehigher time deposits. Average total time deposits increased by $104.5 million, or 4.4%, mainly as a result of our efforts to capture online deposits. Average online deposits increased by $127.0 million, or 182.3%, to $196.6 million in the first half of 2020 compared to $69.6 million the same period in 2019. Average total checking and savingsavings account balances whichfor the first half of 2020 decreased 11.0%. The increase of $44.4year-on-year by $218.7 million, or 1.9%7.9%, in average time deposits was mainly the result of our 2018 promotions, where we sought longer-duration depositsprimarily due to our expectations at that time for higher interest rates in the future and changing customer preferences as interest rates increased. This was partially offset by a decline in the rate of CD renewals in connection with the aforementioned strategic decrease in promotional interest rates. The decrease of $342.9 million, or 11.0%, in average total checking and saving account balances is primarily the result of a decline of $452.9$263.6 million, or 16.9%11.7%, in the average balance of international accounts, partially offset by higher average domestic customer deposits. The decline in average international accounts includes $85.2a decrease of $260.8 million, or 20.4%13.7%, in personal accounts and a decline of $2.8 million, or 0.8%, in commercial accounts and $367.7 million, or 16.2%, in personal accounts. The overall decline in average balance of international commercial and personal accounts is primarily due to the continued utilization of deposits from our Venezuelan resident customers spending their U.S. Dollar savings. As livingto fund everyday expenses, as challenging conditions in Venezuela remain difficult, thosetheir country persist. In the second quarter of 2020, the pace of utilization of deposits from our Venezuelan customers continueddeclined mainly due to rely onlower economic activity in their U.S. Dollar depositscountry currently attributable to fund daily living expenses.the COVID-19 pandemic.
Interest expense on FHLB advances and other borrowings was relatively unchangeddecreased by $5.0 million, or 39.8%, in the six months ended June 30, 2019 with respect2020 compared to the same period of 2018. This was the2019, mainly as a result of a 7.9% decline in the average balance outstanding, partially offset by an increasedecrease of 19104 basis points in the average rate paid on these borrowings. Advances fromThis reduction in rates, includes the FHLB are used to actively manageeffect of the Company’s funding profile by match funding CRE loans.aforementioned $420 million in FHLB advances bear fixedrestructuring at the beginning of the second quarter of 2020. These results were partially offset by an increase of $92.8 million, or 8.5% in the average balance outstanding compared to the previous year. In addition, in 2019 the Company terminated interest rates from 1.50%rate swaps that had been designated as cash flow hedges to 3.86%manage interest rate exposure on FHLB advances. As a result, the Company recorded a credit of approximately $0.7 million against interest expense on FHLB advances in the first half of 2020 ($0.5 million in the first half of 2019) and expects to record a credit of approximately $0.7 million in the rest of 2020. See “—Capital Resources and Liquidity Management” for detailed information.
Interest expense on junior subordinated debentures decreased by $2.8 million, or 67.6%, and variable interest rates based on 3-month LIBOR which increased to 2.32% atin the six months ended June 30, 2019 from 2.34% at June 30, 2018. At June 30, 2019, $845.02020 compared to the same period last year, mainly driven by a decline of $49.5 million, (75.1%)or 41.9%, in the average balance outstanding in connection with the redemption of FHLB advances were fixed ratethe trust preferred securities issued by Capital Trust III, Statutory Trust II, and $280.0 million (24.9%) were variable rate.Capital Trust I and related subordinated debt, previously discussed.
Average Balance Sheet, Interest and Yield/Rate Analysis
The following tables present average balance sheet information, interest income, interest expense and the corresponding average yields earned and rates paid for the three and six monthsmonth periods ended June 30, 20192020 and 2018.2019. The average balances for loans include both performing and nonperformingnon-performing balances. Interest income on loans includes the effects of discount accretion and the amortization of non-refundable loan origination fees, net deferredof direct loan origination costs, accounted for as yield adjustments. Average balances represent the daily average balances for the periods presented.
| | | Three Months Ended June 30, | Three Months Ended June 30, |
| 2019 | | 2018 | 2020 | | 2019 |
(in thousands, except percentages) | Average Balances | | Income/ Expense | | Yield/ Rates | | Average Balances | | Income/ Expense | | Yield/ Rates | Average Balances | | Income/ Expense | | Yield/ Rates | | Average Balances | | Income/ Expense | | Yield/ Rates |
Interest-earning assets: | | | | | | | | | | | | | | | | | | | | | | |
Loan portfolio, net (1) | $ | 5,641,686 |
| | $ | 66,801 |
| | 4.75 | % | | $ | 5,890,459 |
| | $ | 62,448 |
| | 4.31 | % | $ | 5,712,548 |
| | $ | 53,483 |
| | 3.77 | % | | $ | 5,641,686 |
| | $ | 66,801 |
| | 4.75 | % |
Securities available for sale (2) | 1,522,280 |
| | 10,314 |
| | 2.72 | % | | 1,662,799 |
| | 11,257 |
| | 2.74 | % | |
Securities held to maturity (3) | 82,728 |
| | 506 |
| | 2.45 | % | | 88,811 |
| | 346 |
| | 1.57 | % | |
Debt securities available for sale (2) | | 1,545,335 |
| | 9,283 |
| | 2.42 | % | | 1,498,544 |
| | 10,173 |
| | 2.72 | % |
Debt securities held to maturity (3) | | 68,237 |
| | 308 |
| | 1.82 | % | | 82,728 |
| | 506 |
| | 2.45 | % |
Equity securities with readily determinable fair value not held for trading | | 24,303 |
| | 121 |
| | 2.00 | % | | 23,736 |
| | 141 |
| | 2.38 | % |
Federal Reserve Bank and FHLB stock | 65,861 |
| | 1,066 |
| | 6.49 | % | | 70,243 |
| | 1,106 |
| | 6.45 | % | 69,801 |
| | 916 |
| | 5.28 | % | | 65,861 |
| | 1,066 |
| | 6.49 | % |
Deposits with banks | 88,247 |
| | 539 |
| | 2.45 | % | | 175,434 |
| | 759 |
| | 1.74 | % | 215,406 |
| | 56 |
| | 0.10 | % | | 88,247 |
| | 539 |
| | 2.45 | % |
Total interest-earning assets | 7,400,802 |
| | 79,226 |
| | 4.29 | % | | 7,887,746 |
| | 75,916 |
| | 3.91 | % | 7,635,630 |
| | 64,167 |
| | 3.38 | % | | 7,400,802 |
| | 79,226 |
| | 4.29 | % |
Total non-interest-earning assets less allowance for loan losses | 466,318 |
| | | | | | 531,294 |
| | | | | 512,569 |
| | | | | | 466,318 |
| | | | |
Total assets | $ | 7,867,120 |
| | | | | | $ | 8,419,040 |
| | | | | $ | 8,148,199 |
| | | | | | $ | 7,867,120 |
| | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | |
Checking and saving accounts - | | | | | | | | | | | | | | | | | | | | | | |
Interest bearing DDA | $ | 1,207,811 |
| | $ | 301 |
| | 0.10 | % | | $ | 1,417,230 |
| | $ | 113 |
| | 0.03 | % | $ | 1,122,405 |
| | $ | 104 |
| | 0.04 | % | | $ | 1,207,811 |
| | $ | 301 |
| | 0.10 | % |
Money market | 1,143,072 |
| | 3,997 |
| | 1.40 | % | | 1,225,452 |
| | 3,086 |
| | 1.01 | % | 1,112,363 |
| | 1,521 |
| | 0.55 | % | | 1,143,072 |
| | 3,997 |
| | 1.40 | % |
Savings | 369,538 |
| | 17 |
| | 0.02 | % | | 431,686 |
| | 18 |
| | 0.02 | % | 320,644 |
| | 48 |
| | 0.06 | % | | 369,538 |
| | 17 |
| | 0.02 | % |
Total checking and saving accounts | 2,720,421 |
| | 4,315 |
| | 0.64 | % | | 3,074,368 |
| | 3,217 |
| | 0.42 | % | 2,555,412 |
| | 1,673 |
| | 0.26 | % | | 2,720,421 |
| | 4,315 |
| | 0.64 | % |
Time deposits | 2,314,614 |
| | 12,740 |
| | 2.21 | % | | 2,371,147 |
| | 10,172 |
| | 1.73 | % | 2,484,219 |
| | 12,406 |
| | 2.01 | % | | 2,314,614 |
| | 12,740 |
| | 2.21 | % |
Total deposits | 5,035,035 |
| | 17,055 |
| | 1.36 | % | | 5,445,515 |
| | 13,389 |
| | 0.99 | % | 5,039,631 |
| | 14,079 |
| | 1.12 | % | | 5,035,035 |
| | 17,055 |
| | 1.36 | % |
Securities sold under agreements to repurchase | — |
| | — |
| | — | % | | 423 |
| | 2 |
| | 1.90 | % | 474 |
| | — |
| | — | % | | — |
| | — |
| | — | % |
Advances from the FHLB and other borrowings (4) | 1,071,978 |
| | 6,292 |
| | 2.35 | % | | 1,173,000 |
| | 6,511 |
| | 2.24 | % | 1,163,022 |
| | 3,110 |
| | 1.08 | % | | 1,071,978 |
| | 6,292 |
| | 2.35 | % |
Senior notes | | 5,136 |
| | 84 |
| | 6.58 | % | | — |
| | — |
| | — | % |
Junior subordinated debentures | 118,110 |
| | 2,090 |
| | 7.10 | % | | 118,110 |
| | 2,025 |
| | 7.04 | % | 64,178 |
| | 571 |
| | 3.58 | % | | 118,110 |
| | 2,090 |
| | 7.10 | % |
Total interest-bearing liabilities | 6,225,123 |
| | 25,437 |
| | 1.64 | % | | 6,737,048 |
| | 21,927 |
| | 1.31 | % | 6,272,441 |
| | 17,844 |
| | 1.14 | % | | 6,225,123 |
| | 25,437 |
| | 1.64 | % |
Non-interest-bearing liabilities: | | | | | | | | | | | | |
Non-interest bearing demand deposits | | 916,980 |
| | | | | | 793,197 |
| | | | |
Accounts payable, accrued liabilities and other liabilities | | 106,738 |
| | | | | | 62,677 |
| | | | |
Total non-interest-bearing liabilities | 855,874 |
| | | | | | 933,968 |
| | | | | 1,023,718 |
| | | | | | 855,874 |
| | | | |
Total liabilities | 7,080,997 |
| | | | | | 7,671,016 |
| | | | | 7,296,159 |
| | | | | | 7,080,997 |
| | | | |
Stockholders’ equity | 786,123 |
| | | | | | 748,024 |
| | | | | 852,040 |
| | | | | | 786,123 |
| | | | |
Total liabilities and stockholders' equity | $ | 7,867,120 |
| | | | | | $ | 8,419,040 |
| | | | | $ | 8,148,199 |
| | | | | | $ | 7,867,120 |
| | | | |
Excess of average interest-earning assets over average interest-bearing liabilities | $ | 1,175,679 |
| | | | | | $ | 1,150,698 |
| | | | | $ | 1,363,189 |
| | | | | | $ | 1,175,679 |
| | | | |
Net interest income | | | $ | 53,789 |
| | | | | | $ | 53,989 |
| | | | | $ | 46,323 |
| | | | | | $ | 53,789 |
| | |
Net interest rate spread | | | | | 2.65 | % | | | | | | 2.60 | % | | | | | 2.24 | % | | | | | | 2.65 | % |
Net interest margin (5) | | | | | 2.92 | % | | | | | | 2.77 | % | | | | | 2.44 | % | | | | | | 2.92 | % |
Ratio of average interest-earning assets to average interest-bearing liabilities | 118.89 | % | | | | | | 117.08 | % | | | | | 121.73 | % | | | | | | 118.89 | % | | | | |
| | | Six Months Ended June 30, | Six Months Ended June 30, |
| 2019 | | 2018 | 2020 | | 2019 |
(in thousands, except percentages) | Average Balances | | Income/ Expense | | Yield/ Rates | | Average Balances | | Income/ Expense | | Yield/ Rates | Average Balances | | Income/ Expense | | Yield/ Rates | | Average Balances | | Income/ Expense | | Yield/ Rates |
Interest-earning assets: | | | | | | | | | | | | | | | | | | | | | | |
Loan portfolio, net (1) | $ | 5,674,606 |
| | $ | 133,523 |
| | 4.74 | % | | $ | 5,902,893 |
| | $ | 122,118 |
| | 4.18 | % | $ | 5,643,088 |
| | $ | 113,271 |
| | 4.04 | % | | $ | 5,674,606 |
| | $ | 133,523 |
| | 4.74 | % |
Securities available for sale (2) | 1,538,961 |
| | 21,204 |
| | 2.78 | % | | 1,669,607 |
| | 21,549 |
| | 2.60 | % | |
Securities held to maturity (3) | 83,665 |
| | 1,092 |
| | 2.63 | % | | 89,165 |
| | 856 |
| | 1.93 | % | |
Debt securities available for sale (2) | | 1,547,418 |
| | 18,781 |
| | 2.44 | % | | 1,515,627 |
| | 20,923 |
| | 2.78 | % |
Debt securities held to maturity (3) | | 70,355 |
| | 708 |
| | 2.02 | % | | 83,665 |
| | 1,092 |
| | 2.63 | % |
Equity securities with readily determinable fair value not held for trading | | 24,178 |
| | 252 |
| | 2.10 | % | | 23,334 |
| | 281 |
| | 2.43 | % |
Federal Reserve Bank and FHLB stock | 66,657 |
| | 2,171 |
| | 6.57 | % | | 70,304 |
| | 2,045 |
| | 5.90 | % | 70,497 |
| | 1,952 |
| | 5.57 | % | | 66,657 |
| | 2,171 |
| | 6.57 | % |
Deposits with banks | 127,551 |
| | 1,543 |
| | 2.44 | % | | 157,391 |
| | 1,279 |
| | 1.63 | % | 193,627 |
| | 518 |
| | 0.54 | % | | 127,551 |
| | 1,543 |
| | 2.44 | % |
Total interest-earning assets | 7,491,440 |
| | 159,533 |
| | 4.29 | % | | 7,889,360 |
| | 147,847 |
| | 3.78 | % | 7,549,163 |
| | 135,482 |
| | 3.61 | % | | 7,491,440 |
| | 159,533 |
| | 4.29 | % |
Total non-interest-earning assets less allowance for loan losses | 473,237 |
| | | | | | 524,074 |
| | | | | 500,363 |
| | | | | | 473,237 |
| | | | |
Total assets | $ | 7,964,677 |
| | | | | | $ | 8,413,434 |
| | | | | $ | 8,049,526 |
| | | | | | $ | 7,964,677 |
| | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | | | | |
Checking and saving accounts - | | | | | | | | | | | | | | | | | | | | | | |
Interest bearing DDA | $ | 1,235,056 |
| | $ | 575 |
| | 0.09 | % | | $ | 1,446,823 |
| | $ | 202 |
| | 0.03 | % | $ | 1,097,489 |
| | $ | 239 |
| | 0.04 | % | | $ | 1,235,056 |
| | $ | 575 |
| | 0.09 | % |
Money market | 1,150,805 |
| | 7,714 |
| | 1.35 | % | | 1,219,748 |
| | 5,652 |
| | 0.93 | % | 1,124,432 |
| | 4,770 |
| | 0.85 | % | | 1,150,805 |
| | 7,714 |
| | 1.35 | % |
Savings | 376,443 |
| | 33 |
| | 0.02 | % | | 438,668 |
| | 36 |
| | 0.02 | % | 321,663 |
| | 65 |
| | 0.04 | % | | 376,443 |
| | 33 |
| | 0.02 | % |
Total checking and saving accounts | 2,762,304 |
| | 8,322 |
| | 0.61 | % | | 3,105,239 |
| | 5,890 |
| | 0.38 | % | 2,543,584 |
| | 5,074 |
| | 0.40 | % | | 2,762,304 |
| | 8,322 |
| | 0.61 | % |
Time deposits | 2,368,185 |
| | 25,293 |
| | 2.15 | % | | 2,323,746 |
| | 18,872 |
| | 1.63 | % | 2,472,646 |
| | 25,890 |
| | 2.11 | % | | 2,368,185 |
| | 25,293 |
| | 2.15 | % |
Total deposits | 5,130,489 |
| | 33,615 |
| | 1.32 | % | | 5,428,985 |
| | 24,762 |
| | 0.91 | % | 5,016,230 |
| | 30,964 |
| | 1.24 | % | | 5,130,489 |
| | 33,615 |
| | 1.32 | % |
Securities sold under agreements to repurchase | — |
| | — |
| | — | % | | 213 |
| | 2 |
| | 1.89 | % | 237 |
| | — |
| | — | % | | — |
| | — |
| | — | % |
Advances from the FHLB and other borrowings (4) | 1,086,586 |
| | 12,497 |
| | 2.32 | % | | 1,179,934 |
| | 12,501 |
| | 2.13 | % | 1,179,368 |
| | 7,522 |
| | 1.28 | % | | 1,086,586 |
| | 12,497 |
| | 2.32 | % |
Senior notes | | 2,568 |
| | 84 |
| | 6.58 | % | | — |
| | — |
| | — | % |
Junior subordinated debentures | 118,110 |
| | 4,195 |
| | 7.16 | % | | 118,110 |
| | 3,960 |
| | 6.82 | % | 68,650 |
| | 1,360 |
| | 3.98 | % | | 118,110 |
| | 4,195 |
| | 7.16 | % |
Total interest-bearing liabilities | 6,335,185 |
| | 50,307 |
| | 1.60 | % | | 6,727,242 |
| | 41,225 |
| | 1.23 | % | 6,267,053 |
| | 39,930 |
| | 1.28 | % | | 6,335,185 |
| | 50,307 |
| | 1.60 | % |
Non-interest-bearing liabilities: | | | | | | | | | | | | |
Non-interest bearing demand deposits | | 836,782 |
| | | | | | 786,674 |
| | | | |
Accounts payable, accrued liabilities and other liabilities | | 97,816 |
| | | | | | 69,367 |
| | | | |
Total non-interest-bearing liabilities | 856,041 |
| | | | | | 938,287 |
| | | | | 934,598 |
| | | | | | 856,041 |
| | | | |
Total liabilities | 7,191,226 |
| | | | | | 7,665,529 |
| | | | | 7,201,651 |
| | | | | | 7,191,226 |
| | | | |
Stockholders’ equity | 773,451 |
| | | | | | 747,905 |
| | | | | 847,875 |
| | | | | | 773,451 |
| | | | |
Total liabilities and stockholders' equity | $ | 7,964,677 |
| | | | | | $ | 8,413,434 |
| | | | | $ | 8,049,526 |
| | | | | | $ | 7,964,677 |
| | | | |
Excess of average interest-earning assets over average interest-bearing liabilities | $ | 1,156,255 |
| | | | | | $ | 1,162,118 |
| | | | | $ | 1,282,110 |
| | | | | | $ | 1,156,255 |
| | | | |
Net interest income | | | $ | 109,226 |
| | | | | | $ | 106,622 |
| | | | | $ | 95,552 |
| | | | | | $ | 109,226 |
| | |
Net interest rate spread | | | | | 2.69 | % | | | | | | 2.55 | % | | | | | 2.33 | % | | | | | | 2.69 | % |
Net interest margin (5) | | | | | 2.94 | % | | | | | | 2.72 | % | | | | | 2.55 | % | | | | | | 2.94 | % |
Ratio of average interest-earning assets to average interest-bearing liabilities | 118.25 | % | | | | | | 117.27 | % | | | | | 120.46 | % | | | | | | 118.25 | % | | | | |
________________________
| |
(1) | Average non-performing loans of $24.5$50.4 million and $34.0$24.5 million for the three months ended June 30, 2020 and 2019, respectively, and 2018, respectively,$41.6 million and $22.1 million and $32.7 million for the six months ended June 30, 2019 2020,and 2018,2019, respectively, are included in the average loan portfolio, net balance.net. |
| |
(2) | Includes nontaxable securities with average balances of $122.9$62.2 million and $174.1$122.9 million for the three months ended June 30, 2020 and 2019, respectively, and 2018, respectively,$55.8 million and $140.4 million and $175.4 million for the six months ended June 30, 2020, and 2019, and 2018, respectively. The tax equivalent yield for these nontaxable securities for the three months ended June 30, 2020 and 2019 was 3.77% and 2018 was 4.05% and 4.10%, respectively, and 4.03%3.82% and 3.83%4.03% for the six months ended June 30, 2020, and 2019, respectively. In 2020 and 2018, respectively. In the three and six month periods ended June 30, 2019, and 2018, the tax equivalent yields were calculated by assuming a 21% tax rate and dividing the actual yield by 0.79. |
| |
(3) | Includes nontaxable securities with average balances of $82.7$68.2 million and $88.8$82.7 million for the three months ended June 30, 2020 and 2019, respectively, and 2018, respectively,$70.4 million and $83.7 million and $88.9 million for the six months ended June 30, 2020 and 2019, and 2018, respectively. The tax equivalent yield for these nontaxable securities for the three months ended June 30, 2020 and 2019 was 2.30% and 2018 was 3.10% and 2.00%, respectively, and 3.33%2.56% and 2.45%3.33% for the six months ended June 30, 2020, and 2019, respectively. In 2020 and 2018, respectively. In the three and six month periods ended June 30, 2019, and 2018, the tax equivalent yields were calculated by assuming a 21% tax rate and dividing the actual yield by 0.79 (1 minus the tax rate of 0.21).0.79. |
| |
(4) | The terms of the advance agreements require the Bank to maintain certain investment securities or loans as collateral for these advances. |
| |
(5) | Net interest margin is defined as net interest income divided by average interest-earning assets, which are loans, securities, available for sale and held to maturity, deposits with banks and other financial assets which yield interest or similar income. |
Analysis of the Allowance for Loan Losses
Set forth in the table below are the changes in the allowance for loan losses for each of the periods presented.
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 | 2020 | | 2019 | | 2020 | | 2019 |
(in thousands)
| | |
Balance at the beginning of the period | $ | 60,322 |
| | $ | 72,118 |
| | $ | 61,762 |
| | $ | 72,000 |
| $ | 72,948 |
| | $ | 60,322 |
| | $ | 52,223 |
| | $ | 61,762 |
|
| | | | | | | | | | | | | | |
Charge-offs | | | | | | | | | | | | | | |
Domestic Loans: | | | | | | | | | | | | | | |
Real Estate | | | | | | | | |
Real estate loans | | | | | | | | |
Single-family residential | — |
| | (27 | ) | | (87 | ) | | (27 | ) | — |
| | — |
| | — |
| | (87 | ) |
Owner occupied | | — |
| | — |
| | (27 | ) | | — |
|
| | — |
| | — |
| | (27 | ) | | (87 | ) |
Commercial | (874 | ) | | (2,355 | ) | | (1,866 | ) | | (2,737 | ) | (2,075 | ) | | (874 | ) | | (3,149 | ) | | (1,866 | ) |
Consumer and others | (210 | ) | | (71 | ) | | (319 | ) | | (90 | ) | (44 | ) | | (210 | ) | | (266 | ) | | (319 | ) |
| (1,084 | ) | | (2,453 | ) | | (2,272 | ) | | (2,854 | ) | (2,119 | ) | | (1,084 | ) | | (3,442 | ) | | (2,272 | ) |
| | | | | | | | | | | | | | |
International Loans (1): | | | | | | | | | | | | | | |
Commercial | (43 | ) | | (52 | ) | | (61 | ) | | (52 | ) | — |
| | (43 | ) | | (34 | ) | | (61 | ) |
Consumer and others | (894 | ) | | (230 | ) | | (1,300 | ) | | (630 | ) | (7 | ) | | (894 | ) | | (258 | ) | | (1,300 | ) |
| (937 | ) | | (282 | ) | | (1,361 | ) | | (682 | ) | (7 | ) | | (937 | ) | | (292 | ) | | (1,361 | ) |
Total Charge-offs | $ | (2,021 | ) | | $ | (2,735 | ) | | $ | (3,633 | ) | | $ | (3,536 | ) | $ | (2,126 | ) | | $ | (2,021 | ) | | $ | (3,734 | ) | | $ | (3,633 | ) |
| | | | | | | | | | | | | | |
Recoveries | | | | | | | | | | | | | | |
Domestic Loans: | | | | | | | | | | | | | | |
Real Estate Loans | | | | | | | | |
Commercial Real Estate (CRE) | | | | | | | | |
Non-Owner occupied | $ | — |
| | $ | 4 |
| | $ | — |
| | $ | 5 |
| |
Land development and construction loans | — |
| | — |
| | — |
| | 33 |
| |
| — |
| | 4 |
| | — |
| | 38 |
| |
Real estate loans | | | | | | | | |
Single-family residential | 104 |
| | 60 |
| | 143 |
| | 64 |
| 40 |
| | 104 |
| | 70 |
| | 143 |
|
Owner occupied | 2 |
| | 95 |
| | 2 |
| | 883 |
| — |
| | 2 |
| | — |
| | 2 |
|
| 106 |
| | 159 |
| | 145 |
| | 985 |
| 40 |
| | 106 |
| | 70 |
| | 145 |
|
Commercial | 149 |
| | 174 |
| | 180 |
| | 218 |
| 50 |
| | 149 |
| | 111 |
| | 180 |
|
Consumer and others | 6 |
| | 26 |
| | 7 |
| | 32 |
| 2 |
| | 6 |
| | 19 |
| | 7 |
|
| 261 |
| | 359 |
| | 332 |
| | 1,235 |
| 92 |
| | 261 |
| | 200 |
| | 332 |
|
| | | | | | | | | | | | | | |
International Loans (1): | | | | | | | | | | | | | | |
Real Estate | | | | | | | | |
Single-family residential | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| |
Commercial | 136 |
| | — |
| | 228 |
| | — |
| — |
| | 136 |
| | 124 |
| | 228 |
|
Consumer and others | 56 |
| | 39 |
| | 65 |
| | 82 |
| 118 |
| | 56 |
| | 219 |
| | 65 |
|
| 192 |
| | 39 |
| | 293 |
| | 82 |
| 118 |
| | 192 |
| | 343 |
| | 293 |
|
Total Recoveries | $ | 453 |
| | $ | 398 |
| | $ | 625 |
| | $ | 1,317 |
| $ | 210 |
| | $ | 453 |
| | $ | 543 |
| | $ | 625 |
|
| | | | | | | | | | | | | | |
Net charge-offs | (1,568 | ) | | (2,337 | ) | | (3,008 | ) | | (2,219 | ) | (1,916 | ) | | (1,568 | ) | | (3,191 | ) | | (3,008 | ) |
(Reversal of) provision for loan losses | (1,350 | ) | | 150 |
| | (1,350 | ) | | 150 |
| |
Provision for (reversal of) loan losses | | 48,620 |
| | (1,350 | ) | | 70,620 |
| | (1,350 | ) |
Balance at the end of the period | $ | 57,404 |
| | $ | 69,931 |
| | $ | 57,404 |
| | $ | 69,931 |
| $ | 119,652 |
| | $ | 57,404 |
| | $ | 119,652 |
| | $ | 57,404 |
|
__________________ | |
(1) | Includes transactions in which the debtor or the customer is domiciled outside the U.S., even when the collateral is located in the U.S. |
Set forth in the table below is the composition of international consumer loans and overdraft charge-offs by country for each of the periods presented.
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 | 2020 | | 2019 | | 2020 | | 2019 |
(in thousands)
| | |
Venezuela | $ | 729 |
| | $ | 230 |
| | 1,041 |
| | 630 |
| $ | 7 |
| | $ | 729 |
| | 238 |
| | 1,041 |
|
Other countries | 165 |
| | — |
| | 259 |
| | — |
| — |
| | 165 |
| | 20 |
| | 259 |
|
Total charge offs | $ | 894 |
| | $ | 230 |
| | $ | 1,300 |
| | $ | 630 |
| $ | 7 |
| | $ | 894 |
| | $ | 258 |
| | $ | 1,300 |
|
Three Months Ended June 30, 20192020 and 20182019
During the three months ended June 30, 2019,2020, charge-offs decreasedincreased by $0.1 million, or 5.2%, compared to $2.0 million from $2.7 million during the same period of the prior year. This decrease was mainly due to higher charge-offs related to domestic commercial loans inCharge-offs during the second quarter of 2018, partially offset by an aggregate of $1.02020 mainly included a $1.9 million in charge-offscharge-off on a commercial loan related to credit cardsSouth Florida food wholesale borrower disclosed in previous quarters. This loan had already been reserved and the Company did not experience any unanticipated losses during the second quarter of 2019. Additionally, recoveries increased to $0.5 million in the three months ended June 30, 2019, compared to $0.4 million during the same period in 2018.2020. The increase in recoveries was mainly driven by a $136 thousand recovery related to one international commercial loan in the second quarter of 2019. As a result, the ratio of net charge-offs over the average total loan portfolio during the three months ended June 30, 2019 decreased 52020 increased 2 basis pointspoint to 0.11%0.13% from a net charge-off ratio of 0.16%0.11% in the same quarter in 2018.2019.
During the three months ended June 30, 2019 we released $1.4 million from the allowanceThe Company recorded a provision for loan losses of $48.6 million during the second quarter of 2020, compared to a reversal of loan losses of $1.4 million in the second quarter of 2019. The provision for loan losses during the second quarter of 2020 was mainly due to a provision of $0.2$28.2 million due to specific reserve requirements as a result of loan portfolio deterioration and downgrades during the same period last year. This was mainlyperiod. In addition, the provision for loan losses during the second quarter of 2020 included $20.2 million driven by improved quantitative factorsestimated probable losses reflecting deterioration in CRE and domestic commercial loans. Improved quantitative factors were partially offset by additionalthe macro-economic environment as a result of the COVID-19 pandemic across multiple impacted sectors.
The provision of $28.2 million in specific reserve requirements during the second quarter of 2020 includes $20.0 million related to certain loan arrangements with a Miami based U.S. coffee trader, which as of June 30, 2020, had loan arrangements with an outstanding balance of approximately $39.8 million. As disclosed by the Company on a current report on Form 8-K filed on July 16, 2020, the management of the Bank and the Company considered it necessary and prudent to provide, as of the close of the second quarter of 2020, for $11.6a loan loss reserve for this indebtedness which it initially estimated at approximately $17.0 million. On July 22, 2020, the Company received additional information from the assignee leading the liquidation procedure for the borrower and, based on an evaluation of this additional information, management of the Bank and the Company considered it necessary and prudent to increase the loan loss reserve for this indebtedness by an additional $3.1 million for a total of loans$20.0 million. As the liquidation procedure progresses and more information becomes available, management may decide to a South Florida customer that was placed in non-accrual in June 2019,increase or decrease the loan loss reserve for this indebtedness. The Company intends to pursue any possible courses of actions available to it to mitigate the ultimate losses on this indebtedness and recover as much of the outstanding indebtedness as possible. Nevertheless, it is too early to determine if any of these possible courses of action are available to it and/or will be successful.
While it is difficult to estimate the extent of the impact of COVID-19 on Amerant’s credit quality, Amerant continues to proactively and carefully monitor the Company’s credit cardquality practices, including examining and responding to patterns or trends that may arise across certain industries or regions. Importantly, while the Company continues to offer customized loan payment relief options, including interest-only payments and forbearance options, which are not considered loan modifications meeting the criteria of troubled debt restructurings, or TDRs, it will continue to assess its ability to offer such programs over time. The concentration of the loan portfolio and for growth in domestic loans. See “Loan Quality” for details on this downgraded loan relationship. During the three months endedremains stable compared to December 31, 2019.
As of June 30, 2018, we had lower reserve requirements mainly due2020, approximately 42% of the outstanding loan portfolio was tied to improvements in quantitative factors and positive adjustments to qualitative factors appliedindustries, or with collateral values, that are potentially more vulnerable to the financial impact of the COVID-19 pandemic, up from
approximately 30% of loans at March 31, 2020. Approximately 67% of these loans are secured with real estate collateral at June 30, 2020, compared to approximately 50% at March 31, 2020. Except for loans to the real estate industry, the loan portfolio remains well diversified with the highest industry concentration representing 11% of total loans, compared to 12% at March 31, 2020. At the close of June 30, 2020, the Company’s Commercial Real Estate (“CRE”) loan portfolio, represented 50.2% of total loans, with an estimated weighted average Loan to Value (LTV) of 61% and an estimated weighted average Debt Service Coverage Ratio (DSCR) of 1.7x. At the close of March 31, 2020, the Company’s CRE portfolio. These adjustments partially covered the reserve requirements for charge-offs, non-performingloan portfolio was 51.8% of total loans, portfolio growth and additional provision requirements associated with a qualitative assessmentLTV of 60% and an estimated DSCR of 1.6x. Importantly, CRE loans to top tier customers, which are those considered to have the greatest strength and credit quality, represent approximately 42% of the effect to ourCRE loan portfolio from the new tariffs on imports.at both June 30, 2020 and March 31, 2020.
Six Months Ended June 30, 2020 and 2019and2018
During the six months ended June 30, 2019,2020, charge-offs increased to $3.6by $0.1 million, from $3.5 million duringor 2.8%, compared to the same period one year ago. Inof the six months ended June 30, 2019,prior year. Charge-offs during the increasefirst half of 2020 included $1.9 million on a commercial loan to a South Florida food wholesale borrower disclosed in charge-offs was primarilyprevious quarters, $1.1 million related to 4 commercial loans and $0.4 million related to multiple credit cards due to an aggregatethe discontinuation of $1.5the Company’s credit card products. The aforementioned $0.4 million in credit card charge-offs related to credit cards, partially offset by lower charge-offs in commercial loans. Additionally, recoveries decreased to $0.6 million inhad already been reserved and the six months ended June 30, 2019, compared to $1.3 millionCompany did not experience any unanticipated losses during the same period in 2018.first half of 2020. The decrease in recoveries was mainly driven by a $0.8 million recovery of an owner-occupied commercial real estate loan in the first quarter of 2018. As a result, the ratio of net charge-offs over the average total loan portfolio during the six months ended June 30, 2019 increased 4 basis points2020 remained unchanged at 0.11% compared to 0.11% from 0.07% in the same period in 2018.2019.
During the six months ended June 30, 2019 we reversed $1.4 million from the allowanceThe Company recorded a provision for loan losses of $70.6 million during the first half of 2020, compared to a reversal of loan losses of $1.4 million in the first half of 2020. The increase in provision during the first half of 2020 was mainly due to a provision of $0.2$40.0 million driven by estimated probable losses reflecting deterioration in the macro-economic environment as a result of the COVID-19 pandemic across multiple impacted sectors. In addition, the increase in provision during the same period last year. During the six months ended June 30, 2019, lowerfirst half of 2020 includes $28.2 million due to specific reserve requirements due toas a result of loan portfolio deterioration and downgrades during the improvement in quantitative factors in CRE and commercial loans were partially offset by the reserve requirements for charge-offs, non-performing loans, credit cards and portfolio composition changes. During the six months ended June 30, 2018, lower reserve requirements were mainly due to improvements in quantitative factors and positive adjustments to qualitative factors applied to the CRE portfolio partially covered the reserve requirements for charge-offs, non-performing loans, portfolio growth and additional provision requirements associated with a qualitative assessment of the effect to our portfolio from the new tariffs on imports.period.
Noninterest Income
The table below sets forth a comparison for each of the categories of noninterest income for the periods presented.
| | | Three Months Ended June 30, | | Change | Three Months Ended June 30, | | Change |
| 2019 | | 2018 | | 2019 over 2018 | 2020 | | 2019 | | 2020 vs 2019 |
| Amount | | % | | Amount | | % | | Amount | | % | Amount | | % | | Amount | | % | | Amount | | % |
(in thousands, except percentages)
| | |
Deposits and service fees | $ | 4,341 |
| | 30.7 | % | | $ | 4,471 |
| | 29.8 | % | | $ | (130 | ) | | (2.9 | )% | $ | 3,438 |
| | 17.4 | % | | $ | 4,341 |
| | 30.7 | % | | $ | (903 | ) | | (20.8 | )% |
Brokerage, advisory and fiduciary activities | 3,736 |
| | 26.4 | % | | 4,426 |
| | 29.5 | % | | (690 | ) | | (15.6 | )% | 4,325 |
| | 21.9 | % | | 3,736 |
| | 26.4 | % | | 589 |
| | 15.8 | % |
Change in cash surrender value of bank owned life insurance (“BOLI”)(1) | 1,419 |
| | 10.0 | % | | 1,474 |
| | 9.8 | % | | (55 | ) | | (3.7 | )% | 1,427 |
| | 7.2 | % | | 1,419 |
| | 10.0 | % | | 8 |
| | 0.6 | % |
Securities gains, net (2) | | 7,737 |
| | 39.2 | % | | 992 |
| | 7.0 | % | | 6,745 |
| | N/M |
|
Cards and trade finance servicing fees | 1,419 |
| | 10.0 | % | | 1,173 |
| | 7.8 | % | | 246 |
| | 21.0 | % | 273 |
| | 1.4 | % | | 1,419 |
| | 10.0 | % | | (1,146 | ) | | (80.8 | )% |
Gain on early extinguishment of FHLB advances | — |
| | — | % | | 882 |
| | 5.9 | % | | (882 | ) | | N/M |
| |
(Loss) gain on early extinguishment of FHLB advances, net | | (66 | ) | | (0.3 | )% | | — |
| | — | % | | (66 | ) | | N/M |
|
Data processing and fees for other services | 365 |
| | 2.6 | % | | $ | 613 |
| | 4.1 | % | | (248 | ) | | (40.5 | )% | — |
| | — | % | | 365 |
| | 2.6 | % | | (365 | ) | | (100.0 | )% |
Securities gains, net | 992 |
| | 7.0 | % | | 16 |
| | 0.1 | % | | 976 |
| | N/M |
| |
Other noninterest income (2)(3) | 1,875 |
| | 13.3 | % | | 1,931 |
| | 13.0 | % | | (56 | ) | | (2.9 | )% | 2,619 |
| | 13.2 | % | | 1,875 |
| | 13.3 | % | | 744 |
| | 39.7 | % |
Total noninterest income | $ | 14,147 |
| | 100.0 | % | | $ | 14,986 |
| | 100.0 | % | | $ | (839 | ) | | (5.6 | )% | $ | 19,753 |
| | 100.0 | % | | $ | 14,147 |
| | 100.0 | % | | $ | 5,606 |
| | 39.6 | % |
| | | Six Months Ended June 30, | | Change | Six Months Ended June 30, | | Change |
| 2019 | | 2018 | | 2019 over 2018 | 2020 | | 2019 | | 2020 over 2019 |
| Amount | | % | | Amount | | % | | Amount | | % | Amount | | % | | Amount | | % | | Amount | | % |
(in thousands, except percentages)
| | |
Deposits and service fees | $ | 8,427 |
| | 30.9 | % | | $ | 9,053 |
| | 31.3 | % | | $ | (626 | ) | | (6.9 | )% | $ | 7,728 |
| | 18.6 | % | | $ | 8,427 |
| | 30.9 | % | | $ | (699 | ) | | (8.3 | )% |
Brokerage, advisory and fiduciary activities | 7,424 |
| | 27.2 | % | | 8,841 |
| | 30.6 | % | | (1,417 | ) | | (16.0 | )% | 8,458 |
| | 20.3 | % | | 7,424 |
| | 27.2 | % | | 1,034 |
| | 13.9 | % |
Change in cash surrender value of bank owned life insurance (“BOLI”)(1) | 2,823 |
| | 10.3 | % | | 2,918 |
| | 10.1 | % | | (95 | ) | | (3.3 | )% | 2,841 |
| | 6.8 | % | | 2,823 |
| | 10.3 | % | | 18 |
| | 0.6 | % |
Securities gains, net (2) | | 17,357 |
| | 41.7 | % | | 996 |
| | 3.7 | % | | 16,361 |
| | N/M |
|
Cards and trade finance servicing fees | 2,334 |
| | 8.6 | % | | 2,235 |
| | 7.7 | % | | 99 |
| | 4.4 | % | 668 |
| | 1.6 | % | | 2,334 |
| | 8.6 | % | | (1,666 | ) | | (71.4 | )% |
Gain on early extinguishment of FHLB advances | 557 |
| | 2.0 | % | | 882 |
| | 3.1 | % | | (325 | ) | | (36.9 | )% | |
(Loss) gain on early extinguishment of FHLB advances, net | | (73 | ) | | (0.2 | )% | | 557 |
| | 2.0 | % | | (630 | ) | | (113.1 | )% |
Data processing and fees for other services | 885 |
| | 3.2 | % | | $ | 1,494 |
| | 5.2 | % | | (609 | ) | | (40.8 | )% | — |
| | — | % | | 885 |
| | 3.2 | % | | (885 | ) | | (100.0 | )% |
Securities gains, net | 996 |
| | 3.7 | % | | 16 |
| | 0.1 | % | | 980 |
| | N/M |
| |
Other noninterest income (2)(3) | 3,857 |
| | 14.1 | % | | 3,492 |
| | 11.9 | % | | 365 |
| | 10.5 | % | 4,684 |
| | 11.2 | % | | 3,857 |
| | 14.1 | % | | 827 |
| | 21.4 | % |
Total noninterest income | $ | 27,303 |
| | 100.0 | % | | $ | 28,931 |
| | 100.0 | % | | $ | (1,628 | ) | | (5.6 | )% | $ | 41,663 |
| | 100.0 | % | | $ | 27,303 |
| | 100.0 | % | | $ | 14,360 |
| | 52.6 | % |
_________________
___________
| |
(1) | Changes in cash surrender value of BOLI are not taxable. |
| |
(2) | Includes net gain on sale of debt securities of $7.5 million and $16.8 million during the three and six month periods ended June 30, 2020, respectively, and unrealized gain on change in market value of mutual fund of $0.2 million and $0.6 million during the three and six month periods ended June 30, 2020, respectively. |
| |
(3) | Includes rental income, income from derivative and foreign currency exchange transactions with customers, and credits which mirror the valuation lossincome on the investment balances held in the non-qualified deferred compensation plan in order to adjust our liability to participants of the deferred compensation planplan. |
N/M NotMeans not meaningful
Three Months Ended June 30, 20192020 and 20182019
Total noninterest income decreased $0.8increased $5.6 million, or 5.6%39.6%, in the quarterthree months ended June 30, 20192020 compared to the same period of 2018.2019. The declineincrease was mainly driven by: (i) a $6.7 million increase in net securities gains driven by lowera $7.5 million net gain on the sale of 30-year Treasury securities in the second quarter of 2020; (ii) higher other noninterest income and (iii) higher income from brokerage, advisory and fiduciary activities, lower fees from administrative and transition services provided to our Former Parent, and the $0.9 million one-time gain realized in the second quarter of 2018 as a result of the early termination of advances from the Federal Home Loan Bank.activities. These decreasesresults were partially offset by a $1.0 million gain onby: (i) lower cards and trade finance servicing fees; (ii) lower deposits and service fees, and (iii) the saleabsence of municipal bonds as the lower interest rate environment provided a strong market for floating-rate bonds and higher debit card interchange fees. The Durbin Amendment’s limit on interchange fees was eliminated at the end of 2018 when the Federal Reserve determined that we are no longer controlled by our Former Parent. We expect an annualized increase in debit card fees of approximately $0.9 million.
Brokerage, advisory and fiduciary activities decreased $0.7 million during the three months ended June 30, 2019 compared to the same period one year ago, mainly driven by lower volumes of customer trading in 2019. In February 2019, the United States placed new restrictions on the trading of Venezuelan securities not previously restricted. These restrictions have effectively eliminated our customers’ trading in those securities and has negatively affected our fee income. During 2018, the Company earned approximately $1.5 million from trading in these securities. We expect these trading restrictions to continue to limit our fixed income trading activity for the foreseeable future. The Company will continue to focus on leveraging our wealth management platform to grow this side of our domestic business.
Six Months Ended June 30, 2019 and 2018
Total noninterest income decreased by $1.6 million in the six months ended June 30, 2019. This was driven by lower income from brokerage, advisory and fiduciary activities, lower data processing and fees for other services previously provided to ourthe Former Parent lower gain on early extinguishment of FHLB advances and lower deposit and service fees. In addition,its affiliates.
Other noninterest income increased by $0.7 million or 39.7%, in the first halfsecond quarter of 2019, we received $0.6 million in compensation as a result of the early termination of advances2020 compared to $0.9 million during the same period onelast year, ago. The decreasemainly due an increase of $0.9 million in noninterest income was partially offset by the aforementioned $1.0 million gain on sale of municipal bonds and higher income from cards and trade finance servicing fees.derivative transactions with customers driven by higher customer activity.
Brokerage, advisory and fiduciary activities decreased $1.4 million during the first half of 2019 compared to the first half of 2018, mainly due to lower volumes of customer trading activities in connection with the trading limitations on Venezuelan securities.
Deposits and service fees declined byincreased $0.6 million during the first half of 2019 compared to the first half of 2018, mainly as a result of lower wire transfer activity in 2019. Also, during the second quarter of 2019, certain card interchange fees that had been previously classified as deposit and service fees were reclassified to "Cards and trade finance servicing fees" to better reflect the nature and source of these fees.
Data processing and fees for other services declined by $0.6 millionor 15.8%, in the sixthree months ended June 30, 20192020 compared to the same period last year. This was primarily due to an increase in advisory services as a result of a larger allocation of AUMs in the Company’s advisory services business and, higher volume of customer trading activity as a result of increased market volatility.
Cards and trade finance servicing fees declined $1.1 million or 80.8%, in the three months ended June 30, 2020 compared to the same period last year, mainly due to the previously announced changes to the Company's credit card programs.
Deposit and other service fees decreased by $0.9 million or 20.8% in the three moths ended June 30, 2020 compared to the same period last year mainly driven by lower wire transfer fees attributed to the slowdown of economic activity due to the COVID-19 pandemic as well as the implementation of Zelle®.
In the three months ended June 30, 2020, there were no data processing and fees for other services compared to $0.4 million in connection with the separation from oursame period last year, as services previously provided to the Company’s Former Parent includingand its affiliates ended in the third quarter of 2019.
Six Months Ended June 30, 2020 and 2019
Total noninterest income increased $14.4 million, or 52.6%, in the six months ended June 30, 2020 compared to the same period of 2019, mainly driven by: (i) $16.8 million net gain on the sale of our subsidiary G200 Leasing, LLC (“G200 Leasing”) to our Former Parentdebt securities in the first quarterhalf of 2018, and2020 compared to $1.0 million in the resulting loss of aircraft rentalsame period in 2019; (ii) higher income from ourbrokerage, advisory and fiduciary activities and (iii) higher other noninterest income. These results were partially offset by: (i) lower cards and trade finance servicing fees; (ii) lower deposits and service fees; (iii) the absence of $0.9 million in data processing and fees for other services previously provided to the Former Parent.Parent and its affiliates, and (iv) the absence of the $0.6 million gain on early extinguishment of FHLB advances in the first half of 2019.
Brokerage, advisory and fiduciary activities increased $1.0 million or 13.9%, in the first half of 2020 compared to the same period last year. This was primarily due to an increase in advisory services as a result of a larger allocation of AUMs in the Company’s advisory services business, higher volume of customer trading activity as a result of increased market volatility, and increased mutual fund activity.
Other noninterest income increased by $0.4$0.8 million or 21.4%, in the first half of 20192020 compared to the first half of 2018. This2019, mainly due an increase wasof $1.0 million in income from derivative transactions with customers driven by higher customer activity.
Cards and trade finance servicing fees declined $1.7 million or 71.4%, in the six months ended June 30, 2020 compared to the same period last year, mainly due to the previously announced changes to the Company's credit card programs.
Deposit and other service fees decreased by $0.7 million or 8.3% in the six months ended June 30, 2020 compared to the same period in 2019, mainly driven by higher income from derivative and foreign transactions with customers in connection withlower wire transfer fees attributed to the executionslowdown of several interest rate swap contracts with large notional amounts.economic activity due to the COVID-19 pandemic, as well as the implementation of Zelle®.
Noninterest Expense
The table below presents a comparison for each of the categories of noninterest expense for the periods presented.
| | | Three Months Ended June 30, | | Change | Three Months Ended June 30, | | Change |
| 2019 | | 2018 | | 2019 vs 2018 | 2020 | | 2019 | | 2020 vs 2019 |
| Amount | | % of Total | | Amount | | % of Total | | Amount | | % of Total | Amount | | % | | Amount | | % | | Amount | | % |
(in thousands, except percentages)
| | |
Salaries and employee benefits | $ | 34,057 |
| | 64.4 | % | | $ | 34,932 |
| | 66.4 | % | | $ | (875 | ) | | (2.5 | )% | $ | 21,570 |
| | 58.7 | % | | $ | 34,057 |
| | 64.4 | % | | $ | (12,487 | ) | | (36.7 | )% |
Occupancy and equipment | 4,232 |
| | 8.0 | % | | 4,060 |
| | 7.7 | % | | 172 |
| | 4.2 | % | 4,220 |
| | 11.5 | % | | 4,232 |
| | 8.0 | % | | (12 | ) | | (0.3 | )% |
Professional and other services fees | 3,954 |
| | 7.5 | % | | 5,387 |
| | 10.2 | % | | (1,433 | ) | | (26.6 | )% | 3,965 |
| | 10.8 | % | | 3,954 |
| | 7.5 | % | | 11 |
| | 0.3 | % |
Telecommunications and data processing | 3,233 |
| | 6.1 | % | | 3,011 |
| | 5.7 | % | | 222 |
| | 7.4 | % | 3,157 |
| | 8.6 | % | | 3,233 |
| | 6.1 | % | | (76 | ) | | (2.4 | )% |
Depreciation and amortization | 2,010 |
| | 3.8 | % | | 1,945 |
| | 3.7 | % | | 65 |
| | 3.3 | % | 1,960 |
| | 5.3 | % | | 2,010 |
| | 3.8 | % | | (50 | ) | | (2.5 | )% |
FDIC assessments and insurance | 1,177 |
| | 2.2 | % | | 1,468 |
| | 2.8 | % | | (291 | ) | | (19.8 | )% | 1,240 |
| | 3.4 | % | | 1,177 |
| | 2.2 | % | | 63 |
| | 5.4 | % |
Other operating expenses (1) | 4,242 |
| | 8.0 | % | | 1,835 |
| | 3.5 | % | | 2,407 |
| | 131.2 | % | 628 |
| | 1.7 | % | | 4,242 |
| | 8.0 | % | | (3,614 | ) | | (85.2 | )% |
Total noninterest expenses | $ | 52,905 |
| | 100.0 | % | | $ | 52,638 |
| | 100.0 | % | | $ | 267 |
| | 0.5 | % | $ | 36,740 |
| | 100.0 | % | | $ | 52,905 |
| | 100.0 | % | | $ | (16,165 | ) | | (30.6 | )% |
| | | Six Months Ended June 30, | | Change | Six Months Ended June 30, | | Change |
| 2019 | | 2018 | | 2019 vs 2018 | 2020 | | 2019 | | 2020 vs 2019 |
| Amount | | % | | Amount | | % | | Amount | | % | Amount | | % | | Amount | | % | | Amount | | % |
(in thousands, except percentages)
| | |
Salaries and employee benefits | $ | 67,494 |
| | 64.4 | % | | $ | 68,973 |
| | 63.7 | % | | $ | (1,479 | ) | | (2.1 | )% | $ | 50,896 |
| | 62.4 | % | | $ | 67,494 |
| | 64.4 | % | | $ | (16,598 | ) | | (24.6 | )% |
Occupancy and equipment | 8,274 |
| | 7.9 | % | | 7,775 |
| | 7.2 | % | | 499 |
| | 6.4 | % | 8,023 |
| | 9.8 | % | | 8,274 |
| | 7.9 | % | | (251 | ) | | (3.0 | )% |
Professional and other services fees | 7,398 |
| | 7.1 | % | | 11,831 |
| | 10.9 | % | | (4,433 | ) | | (37.5 | )% | 6,919 |
| | 8.5 | % | | 7,398 |
| | 7.1 | % | | (479 | ) | | (6.5 | )% |
Telecommunications and data processing | 6,259 |
| | 6.0 | % | | 6,095 |
| | 5.6 | % | | 164 |
| | 2.7 | % | 6,621 |
| | 8.1 | % | | 6,259 |
| | 6.0 | % | | 362 |
| | 5.8 | % |
Depreciation and amortization | 3,952 |
| | 3.8 | % | | 4,086 |
| | 3.8 | % | | (134 | ) | | (3.3 | )% | 3,919 |
| | 4.8 | % | | 3,952 |
| | 3.8 | % | | (33 | ) | | (0.8 | )% |
FDIC assessments and insurance | 2,570 |
| | 2.5 | % | | 2,915 |
| | 2.7 | % | | (345 | ) | | (11.8 | )% | 2,358 |
| | 2.9 | % | | 2,570 |
| | 2.5 | % | | (212 | ) | | (8.3 | )% |
Other operating expenses (1) | 8,903 |
| | 8.3 | % | | 6,608 |
| | 6.1 | % | | 2,295 |
| | 34.7 | % | 2,871 |
| | 3.5 | % | | 8,903 |
| | 8.3 | % | | (6,032 | ) | | (67.8 | )% |
Total noninterest expenses | $ | 104,850 |
| | 100.0 | % | | $ | 108,283 |
| | 100.0 | % | | $ | (3,433 | ) | | (3.2 | )% | $ | 81,607 |
| | 100.0 | % | | $ | 104,850 |
| | 100.0 | % | | $ | (23,243 | ) | | (22.2 | )% |
________
| |
(1) | Includes advertising, marketing, charitable contributions, community engagement, postage and courier expenses, provisions for possible losses on contingent loans, and debits which mirror the valuation income on the investment balances held in the non-qualified deferred compensation plan in order to adjust our liability to participants of the deferred compensation plan. |
(1) Includes advertising, marketing, charitable contributions, community engagement, postage and courier expenses, provisions for possible losses on contingent loans, and debits which mirror the valuation income on the investment balances held in the non-qualified deferred compensation plan in order to adjust our liability to participants of the deferred compensation plan.
Three Months Ended June 30, 20192020 and 20182019
Noninterest expense increaseddecreased by $0.3$16.2 million, or 0.5%30.6%, in the three months ended June 30, 20192020 compared to the same period in 2018,2019, primarily the result of higher other operating expenses. These results were partially offsetdriven by lower professional and other services fees as well as a decrease in the costs associated with salaries and employee benefits and lower FDIC insuranceother operating expenses.
Other operating expenses increasedSalaries and employee benefits decreased by $2.4$12.5 million or 36.7%, in the three months ended June 30, 2020 compared to the same period last year. This was mainly due to: (i) staff reductions completed in 2019 mainlyand 2018 as well as lower stock-based compensation expense in the second quarter of 2020 and, (ii) the deferral of $7.8 million of expenses directly related to origination of loans under the PPP program in accordance with GAAP. In addition, in the second quarter of 2020, the staff reduction costs driven by $1.8the Company’s ongoing transformation efforts decreased by $0.5 million, of restructuringor 60.3%, to $0.4 million compared to $0.9 million during the same period one year ago.
Other operating expenses related to rebranding incurreddecreased by $3.6 million or 85.2%, in the three months ended June 30, 2019. We launched “Amerant” as our new brand across all our markets in April 2019. The launch included rebranding of all digital platforms, new signs in most branches and buildings, and a broad campaign through digital and traditional media focused on brand awareness. We expect our rebranding rollout to be substantially completed during the fourth quarter of 2019, and we expect to spend approximately $1.8 million in additional rebranding expenses for the remainder of 2019. In addition, we expect to incur approximately $1.2 million in CAPEX, which will be amortized over the shorter of seven years (the estimated useful life of our signs), the remaining life of owned buildings or the remaining terms of leased facilities. Other operating expenses in the second quarter of 2019 also included a reversal of the provision for possible losses on the off-balance sheet credit exposure of $0.4 million compared to $1.0 million in the same quarter one year ago.
The decrease of $1.4 million, or 26.6%, in professional and other services fees during the quarter ended June 30, 20192020 compared to the same period last yearyear. This was mainly due to $2.0the absence of rebranding costs in the second quarter of 2020 compared to $1.8 million of fees incurredrebranding costs in connectionthe same period last year related to the Company’s transformation efforts, as well as lower regular marketing expenses. In addition, the second quarter of 2020 includes a decrease of $0.7 million compared to the same period of 2019 mainly driven by the deferral of other operating expenses directly related to PPP loan originations in the second quarter of 2020.
During the three months ended June 30, 2020, the Company continued with our spin-offits digital transformation efforts, making steady progress on its planned adoption of the Salesforce® Customer Relationship Management (“CRM”) and nCino® loan origination platforms. In addition, the Company is in the process of implementing additional enhancements to its operating processes, including more notably a new approach for servicing calls from our Former Parentits customers. Restructuring costs for the three and six months ended June 30, 2020 include digital transformation expenses of $1.0 million and $1.3 million, respectively. Digital transformation expenses during the three months ended June 30, 2018.
Salaries2020 consisted of $0.6 million of professional and employee benefits decreased by $0.9service fees and $0.4 million of telecommunication and data processing expenses. We had no digital transformation expenses in the three months ended June 30, 2019. This change was mainly driven by staff reductions in 2019 and 2018 and the $1.2 million paid to participants of the non-qualified deferred compensation plan to partially mitigate the effect of the unexpected early distribution for federal income tax purposes in the second quarter of 2018. These results were partially offset by $1.5 million in additional compensation costs related to the shares of restricted stock awarded in December 2018 and January 2019 and the $0.9 million in staff reduction costs related to our various restructuring activities in the second quartersame period of 2019. The total compensation cost relatedCompany is also moving forward with the closure of one banking center in Florida, and another in Texas. These closures are the result of extensive analyses of the profitability of the Company’s retail banking network and their current and expected individual contributions to these restricted shares is expected to be approximately $6.0 million, or $1.5 million per quarter, through 2019, declining to an estimated cost of $2.7 million in 2020 and $1.1 million in 2021.achieving the Company’s strategic goals.
FDIC assessments and insurance expense decreased by $0.3 million in the three months ended June 30, 2019. The decrease was primarily due to lower FDIC assessment rates, the discontinuation of The Financing Corporation (“FICO”) fees and lower average balances.
Six Months Ended June 30, 2020and2019 and 2018
Noninterest expense decreased by $3.423.2 million, or 3.2%22.2%, in the six months ended June 30, 2019,2020 compared to the same period one year ago. This was mainlyin 2019, primarily driven by lower professional and other services fees as well as a decrease in the costs associated with salaries and employee benefits, lower other operating expenses and lower FDIC assessmentsother professional and insurance expense,services fees. This was partially offset by higher other operatingtelecommunication and data processing expenses in the first half of 2020 compared to the same period last year.
Salaries and higher occupancy and equipment costs.
The decrease of $4.4employee benefits decreased by $16.6 million or 37.5%24.6%, in professional and other services fees during the six months ended June 30, 20192020 compared to the same period last year. This was mainly due to: (i) staff reductions completed in 2019 and 2018 as well as lower stock-based compensation expense in the first half of 2020 and, (ii) the deferral of $7.8 million of expenses directly related to origination of loans under the PPP program in accordance with GAAP. In addition, in the first half of 2020, the staff reduction costs decreased by $0.5 million, or 54.4%, to $0.4 million compared to $0.9 million during the same period one year stems from $4.3ago.
Other operating expenses decreased by $6.0 million incurredor 67.8%, in legal, accounting and consulting fees in connection with our spin-off from our Former Parent during the six months ended June 30, 2018.2020 compared to the same period last year. This was mainly due to the absence of rebranding costs in the first half of 2020 compared to $2.8 million million of rebranding costs in the same period last year related to the Company’s transformation efforts, as well as lower regular marketing expenses. In addition, the first half of 2020 includes a decrease of $0.7 million compared to the same period of 2019 mainly driven by the deferral of other operating expenses directly related to PPP loan originations in the second quarter of 2020.
Other operatingTelecommunication and data processing expenses increased by $2.3$0.4 million in the six months ended June 30, 2019,2020 compared to the same period last year, mainly driven by $2.8 million of restructuringan increase in software services, associated with the Company’s digital transformation.
Digital transformation expenses related to rebranding incurred induring the six months ended June 30, 2019, partially offset by lower postage2020 consisted of $0.6 million of professional and courierservice fees and $0.6 million of telecommunication and data processing expense. We had no digital transformation expenses in the first halfsame period of 2019.
Salaries and employee benefits decreased by $1.5 million in the six months ended June 30, 2019, mainly driven by staff reductions in 2019 and 2018 and the aforementioned $1.2 million paid to participants of the non-qualified deferred compensation plan. This decrease was partially offset by $3.0 million in additional compensation costs related to the shares of restricted stock awarded in December 2018 and January 2019 and the $0.9 million in staff reduction costs related to our various restructuring activities in the second quarter of 2019.
Occupancy and equipment expenses increased by $0.5 million in the six months ended June 30, 2019, this was mainly due to higher telecommunication maintenance costs primarily related to a one-time project to improve the
71
telecommunications network system of the bank. Also, there was an increase in premise maintenance and repair costs mainly driven by our rebranding activities in the first half of 2019.
FDIC assessments and insurance expense decreased by $0.3 million in the six months ended June 30, 2019. The decrease was primarily due to lower FDIC assessment rates, the discontinuation of The Financing Corporation fees and lower average balances. As a small institution (under $10 billion) in assets, we received a credit due to the FDIC’s Deposit Insurance Fund attaining a 1.38% reserve ratio.
Income Taxes
The table below sets forth information related to our income taxes for the periods presented.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | Change | | Six Months Ended June 30, | Change |
| 2019 | | 2018 | | 2019 vs 2018 | | 2019 | | 2018 | | 2019 vs 2018 |
(in thousands, except effective tax rates and percentages)
| |
Income tax expense | $ | 3,524 |
| | $ | 5,764 |
| |
| ($2,240 | ) | | (38.9 | )% | | $ | 7,101 |
| | $ | 7,268 |
| |
| ($167 | ) | | (2.3 | )% |
Effective income tax rate | 21.51 | % | | 35.61 | % | | (14.1 | )% | | (39.6 | )% | | 21.50 | % | | 26.80 | % | | (5.3 | )% | | (19.8 | )% |
The income tax expense for the three and six months ended June 30, 2019 reflects the corporate federal income tax rate under the 2017 Tax Act (the “2017 Tax Act”) which, beginning January 1, 2018, decreased the corporate federal income tax rate from 35% to 21%. During the three and six months ended June 30, 2018, the Company had a higher tax expense mainly as a result of tax adjustments associated with spin-off costs which were not tax deductible. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | Change | | Six Months Ended June 30, | Change |
| 2020 | | 2019 | | 2020 vs 2019 | | 2020 | | 2019 | | 2020 vs 2019 |
(in thousands, except effective tax rates and percentages)
| |
Income tax benefit (expense) | $ | 4,005 |
| | $ | (3,524 | ) | |
| $7,529 |
| | (213.65 | )% | | $ | 3,115 |
| | $ | (7,101 | ) | |
| $10,216 |
| | (143.87 | )% |
Effective income tax rate | 20.77 | % | | 21.51 | % | | (0.74 | )% | | (3.44 | )% | | 20.75 | % | | 21.50 | % | | (0.75 | )% | | (3.49 | )% |
As of June 30, 2019,2020, the Company’s net deferred tax asset was $7.0$15.6 million, a declinean increase of $9.3$10.2 million compared to $16.3$5.5 million as of December 31, 2018.2019. This decreaseresult was mainly driven by anthe net increase in the allowance for loan losses of $40.5$67.4 million in gross unrealized gains on the available for sale securitiesrecorded during the first half of 2019.six-month period ended June 30, 2010.
Financial Condition - Comparison of Financial Condition as of June 30, 20192020 and December 31, 20182019
Assets. Total assets were $7.9$8.1 billion as of June 30, 2019, a decline2020, an increase of $197.5$145.3 million, or 2.4%1.8%, compared to $8.1$8.0 billion as of December 31, 2018. The decrease was mainly driven by a decrease2019. This change includes increases of $103.1$96.0 million, or 79.1%, and $60.5 million, or 1.1%, in cash and cash equivalents and loans held for investment net of allowance for loan losses, as foreign loans continued their planned decline, and $90.8respectively. Partially offsetting these increases was a decrease of $64.6 million, loweror 3.7%, in total securities. See “—Average Balance Sheet, Interest and Yield/Rate Analysis” for detailed information, including changes in the composition of our interest-earning assets.
Cash and Cash Equivalents. Cash and cash equivalents increased to $90.3$217.3 million at June 30, 20192020 from $85.7$121.3 million at December 31, 2018.2019. The increase of $96.0 million or 79.1%, is attributable to higher balances at the Federal Reserve as a part of preventive business measures being taken to mitigate the potential negative impact of the COVID-19 pandemic, and include the net proceeds of $58.4 million from the issuance of Senior Notes due 2025 completed during the three months ended June 30, 2020.
Cash flows provided by operating activities were $33.5$27.0 million in the six months ended June 30, 2019. This2020, mainly driven by the net loss of $11.9 million which included the non-cash provision for loan losses of $70.6 million. Operating income was primarily attributed$38.3 million in the first half of 2020, which excludes the non-cash provision for loan losses and other items. See “Non-GAAP Financial Measures Reconciliation” for a reconciliation of these non-GAAP financial measures to net income earned and the termination of interest rate swaps designated as cash flow hedges, which resulted in $8.9 million of proceeds. their U.S. GAAP counterparts.
Net cash provided byused in investing activities was $224.1$28.5 million during the six months ended June 30, 2019,2020, mainly driven by purchases of available for sale securities and FHLB stock totaling $293.0 million and $8.5 million, respectively, and a net increase in loans of $146.3 million. These disbursements were partially offset by maturities, sales and calls of securities available for sale and FHLB stock totaling $313.8$383.1 million and $15.0$16.5 million, respectively, and proceeds from loan portfolio sales totaling $214.4$15.2 million. These proceeds were partially offset by purchases of available for sale securities and FHLB stock totaling $195.4 million and $13.0 million, respectively.
In the six months ended June 30, 2019,2020, net cash used inprovided by financing activities was $253.0$97.6 million. These activities includedincluded: (i) a $165.9$253.8 million net decreaseincrease in total demand, savings and money market deposit balances, $40.4balances; (ii) a $13.7 million net repayment of advances borrowed from the FLHB, the $28.5 million repurchase of Class B common stock completed in the first quarter of 2019, and a $47.4 million decreaseincrease in time deposits. These disbursements were partially offset by $29.2deposits and (iii) $58.4 million in net proceeds from the issuance of Senior Notes during the second quarter of 2020. See “—Capital Resources and Liquidity Management” for more information on the Senior Notes. These proceeds were partially offset by $185.1 million in net repayments of FHLB advances, the redemption of $28.1 million in junior subordinated debentures and the $15.2 million repurchase of shares of Class AB common stock both completed in the first quarter of 2019, which were used to purchase Class B common stock.2020.
Loans
Loans are our largest component of interest-earning assets. The table below depicts the trend of loans as a percentage of total assets and the allowance for loan losses as a percentage of total loans for the periods presented. | | | June 30, 2019 | | December 31, 2018 | June 30, 2020 | | December 31, 2019 |
(in thousands, except percentages)
| | |
Total loans, gross (1) | $ | 5,812,755 |
| | $ | 5,920,175 |
| $ | 5,872,271 |
| | $ | 5,744,339 |
|
Total loans, gross / total assets | 73.3 | % | | 72.9 | % | 72.2 | % | | 71.9 | % |
| | | | | | |
Allowance for loan losses | $ | 57,404 |
| | $ | 61,762 |
| $ | 119,652 |
| | $ | 52,223 |
|
Allowance for loan losses / total loans, gross (1) (2) | 0.99 | % | | 1.04 | % | 2.04 | % | | 0.91 | % |
| | | | | | |
Total loans, net (3) | $ | 5,755,351 |
| | $ | 5,858,413 |
| $ | 5,752,619 |
| | $ | 5,692,116 |
|
Total loans, net / total assets | 72.6 | % | | 72.1 | % | 70.8 | % | | 71.3 | % |
_______________ | |
(1) | OutstandingTotal loans, gross are outstanding loan principal balance net of unamortized deferred nonrefundable loan origination fees and loan origination costs, excluding the allowance for loan losses. There were no loans held for sale andfor the allowance for loan losses.periods presented. |
| |
(2) | See Note 5 of our audited consolidated financial statements in the Form 10-K for the year ended December 31, 2019 and Note 45 of these unaudited interim consolidated financial statements for more details on our impairment models. |
| |
(3) | OutstandingTotal loans, net are outstanding loan principal balance net of unamortized deferred nonrefundable loan origination fees and loan origination costs, excluding loans held for sale and net of the allowance for loan losses. |
The composition of our CRE loan portfolio by industry segment at June 30, 20192020 and December 31, 20182019 is depicted in the following table: | | (in thousands) | June 30, 2019 | | December 31, 2018 | June 30, 2020 | | December 31, 2019 |
Retail (1) | $ | 1,128,385 |
| | $ | 1,081,142 |
| $ | 1,116,359 |
| | $ | 1,143,565 |
|
Multifamily | 968,080 |
| | 909,439 |
| 823,450 |
| | 801,626 |
|
Office space | 457,251 |
| | 441,712 |
| 444,621 |
| | 453,328 |
|
Land and construction | 291,304 |
| | 326,644 |
| 284,766 |
| | 278,688 |
|
Hospitality | 165,378 |
| | 166,415 |
| 191,946 |
| | 198,807 |
|
Industrial and warehouse | 121,479 |
| | 120,086 |
| 88,149 |
| | 96,102 |
|
| $ | 3,131,877 |
| | $ | 3,045,438 |
| $ | 2,949,291 |
| | $ | 2,972,116 |
|
_________ | |
(1) | Includes loans generally granted to finance the acquisition or operation of non-owner occupied properties such as retail shopping centers, free-standing single-tenant properties, and mixed-use properties with a primary retail component, where the primary source of repayment is derived from the rental income generated from the use of the property by its tenants. |
The table below summarizes the composition of our loan portfolio by type of loan as of the end of each period presented. International loans include transactions in which the debtor or customer is domiciled outside the U.S., even when the collateral is U.S. property. All international loans are denominated and payable in U.S. Dollars.
| | (in thousands) | June 30, 2019 | | December 31, 2018 | June 30, 2020 | | December 31, 2019 |
Domestic Loans: | | | | | | |
Real Estate Loans | | | | | | |
Commercial real estate (CRE) | | | | | | |
Nonowner occupied | $ | 1,872,493 |
| | $ | 1,809,356 |
| |
Non-owner occupied | | $ | 1,841,075 |
| | $ | 1,891,802 |
|
Multi-family residential | 968,080 |
| | 909,439 |
| 823,450 |
| | 801,626 |
|
Land development and construction loans | 291,304 |
| | 326,644 |
| 284,766 |
| | 278,688 |
|
| 3,131,877 |
| | 3,045,439 |
| 2,949,291 |
| | 2,972,116 |
|
Single-family residential | 412,709 |
| | 398,043 |
| 486,533 |
| | 427,431 |
|
Owner occupied | 836,334 |
| | 777,022 |
| 938,511 |
| | 894,060 |
|
| 4,380,920 |
| | 4,220,504 |
| 4,374,335 |
| | 4,293,607 |
|
Commercial loans | 1,123,362 |
| | 1,306,792 |
| 1,202,426 |
| | 1,190,193 |
|
Loans to depository institutions and acceptances (1) | 20,006 |
| | 19,965 |
| 16,587 |
| | 16,547 |
|
Consumer loans and overdrafts (2) | 73,674 |
| | 73,155 |
| |
Consumer loans and overdrafts (2) (3) | | 122,758 |
| | 72,555 |
|
Total Domestic Loans | 5,597,962 |
| | 5,620,416 |
| 5,716,106 |
| | 5,572,902 |
|
| | | | | | |
International Loans: | | | | | | |
Real Estate Loans | | | | | | |
Single-family residential (3)(4) | 122,854 |
| | 135,438 |
| 103,180 |
| | 111,671 |
|
Commercial loans | 57,374 |
| | 73,636 |
| 45,029 |
| | 43,850 |
|
Loans to depository institutions and acceptances | 5,000 |
| | 49,000 |
| 10 |
| | 5 |
|
Consumer loans and overdrafts (4) | 29,565 |
| | 41,685 |
| |
Consumer loans and overdrafts (3) (5) | | 7,946 |
| | 15,911 |
|
Total International Loans | 214,793 |
| | 299,759 |
| 156,165 |
| | 171,437 |
|
Total Loan Portfolio | $ | 5,812,755 |
| | $ | 5,920,175 |
| $ | 5,872,271 |
| | $ | 5,744,339 |
|
__________________ | |
(1) | Secured byMostly comprised of cash or U.S. Government securities. |
| |
(2) | Includes customers’ overdraft balances totaling $0.8$0.2 million and $1.0$1.3 million as of June 30, 20192020 and December 31, 20182019, respectively. |
| |
(3) | There were no outstanding credit card balances as of June 30, 2020. At December 31, 2019, balances were mostly comprised of credit card extensions of credit to customers with deposits with the Bank. The Company phased out its legacy credit card products to further strengthen its credit quality. |
| |
(4) | Secured by real estate properties located in the U.S. |
| |
(4)(5) | International customers’ overdraft balances were de minimis at each of the dates presented. |
Our strategy is to let foreign financial institution loans mature, and continue to divest Shared National Credits (“SNC”) where the Company does not have a direct relationship with the borrower.
As of June 30, 2019,2020, the loan portfolio decreased $107.4increased $127.9 million, or 1.8%2.2%, to $5.8$5.9 billion, as compared to $5.9$5.7 billion at December 31, 2018. As part of our business strategy, loans2019. Loans to international customers, primarily from Latin America, declined by $85.0$15.3 million, or 28.3%8.9%, as of June 30, 2019,2020, compared to December 31, 2018.2019. The domestic loan exposure decreased $22.5increased $143.2 million, or 0.4%2.6%, as of June 30, 2019,2020, compared to December 31, 2018.2019. The declineincrease in total domestic loans includes net decreasesincreases of $183.4$59.1 million, $50.2 million, $44.5 million, $12.2 million in Commercialsingle-family residential loans, partially offset by net increases of $86.4 million, $59.3 million and $14.7 million in CREconsumer loans, owner occupied loans and commercial loans, respectively. This was partially offset by a decline of $22.8 million in domestic CRE, mainly driven by lower economic activity, and more stringent credit guidelines associated with the COVID-19 pandemic. The increase in commercial loans include approximately $214.1 million in PPP loans, originated during the second quarter of 2020, partially offset by lower economic activity in the first half of 2020 due to the COVID-19 pandemic. The increase in single-family residential loans respectively. In the six months ended June 30, 2019, the decline in domestic loans was mainly driven by a $213.1attributable to the growth in jumbo mortgages. The increase in consumer loans includes $60 million reduction in connection withhigh-yield indirect consumer loans purchased during the salefirst half of non-relationship SNCs.2020.
As of June 30, 2020, loans under syndication facilities declined $84.9 million, or 15.1%, compared to December 31, 2019, mainly as a result of paydowns and the sale of a $11.9 million non-relationship syndicated loan. As of June 30, 2020, syndicated loans that financed highly leveraged transactions were $36.9$18.5 million, or 0.6%0.3%, of total loans, compared to $207.7$35.7 million, or 3.5%0.6%, of total loans as of December 31, 2018.
2019.
Foreign Outstanding
The table below summarizes the composition of our international loan portfolio by country of risk for the periods presented. All of our foreign loans are denominated in U.S. Dollars, and bear fixed or variable rates of interest based upon different market benchmarks plus a spread. | | | June 30, 2019 | | December 31, 2018 | June 30, 2020 | | December 31, 2019 |
| Net Exposure(1) | | % Total Assets | | Net Exposure(1) | | % Total Assets | Net Exposure (1) | | % Total Assets | | Net Exposure (1) | | % Total Assets |
(in thousands, except percentages)
| | |
Venezuela (2) | $ | 137,414 |
| | 1.73 | % | | $ | 157,162 |
| | 1.93 | % | $ | 93,770 |
| | 1.1 | % | | $ | 112,297 |
| | 1.4 | % |
Other (3) | 77,379 |
| | 0.98 | % | | 142,597 |
| | 1.77 | % | 62,395 |
| | 0.8 | % | | 59,140 |
| | 0.7 | % |
Total | $ | 214,793 |
| | 2.71 | % | | $ | 299,759 |
| | 3.70 | % | $ | 156,165 |
| | 1.9 | % | | $ | 171,437 |
| | 2.1 | % |
_________________
| |
(1) | Consists of outstanding principal amounts, net of collateral of cash, cash equivalents or other financial instruments totaling $20.6$11.9 million and $19.5$15.2 million as of June 30, 20192020 and December 31, 2018,2019, respectively. |
| |
(2) | Includes mortgage loans for single-family residential properties located in the U.S. totaling $116.2$93.4 million and $129.0$104.0 million as of June 30, 20192020 and December 31, 2018,2019, respectively. |
(3) | |
(3) | Includes loans to borrowers in other countries which do not individually exceed one percent of total assets in any of the reported periods. |
The maturities of our outstanding international loans were: | | | June 30, 2019 | | December 31, 2018 | June 30, 2020 | | December 31, 2019 |
| Less than 1 year | | 1-3 Years | | More than 3 years | | Total | | Less than 1 year | | 1-3 Years | | More than 3 years | | Total | Less than 1 year | | 1-3 Years | | More than 3 years | | Total | | Less than 1 year | | 1-3 Years | | More than 3 years | | Total |
(in thousands)
| | | | | | |
Venezuela (1) | $ | 20,770 |
| | $ | 1,778 |
| | $ | 114,866 |
| | $ | 137,414 |
| | $ | 27,415 |
| | $ | 1,059 |
| | $ | 128,688 |
| | $ | 157,162 |
| $ | 137 |
| | $ | 5,781 |
| | $ | 87,852 |
| | $ | 93,770 |
| | $ | 8,141 |
| | $ | 3,617 |
| | $ | 100,539 |
| | $ | 112,297 |
|
Other (2) | 22,301 |
| | 9,263 |
| | 45,815 |
| | 77,379 |
| | 71,707 |
| | 18,200 |
| | 52,690 |
| | 142,597 |
| 7,076 |
| | 18,588 |
| | 36,731 |
| | 62,395 |
| | 6,146 |
| | 9,282 |
| | 43,712 |
| | 59,140 |
|
Total (3) | $ | 43,071 |
| | $ | 11,041 |
| | $ | 160,681 |
| | $ | 292,172 |
| | $ | 99,122 |
| | $ | 19,259 |
| | $ | 181,378 |
| | $ | 442,356 |
| $ | 7,213 |
| | $ | 24,369 |
| | $ | 124,583 |
| | $ | 156,165 |
| | $ | 14,287 |
| | $ | 12,899 |
| | $ | 144,251 |
| | $ | 171,437 |
|
_________________
| |
(1) | Includes mortgage loans for single-family residential properties located in the U.S. totaling $116.2$93.4 million and $129.0$104.0 million as of June 30, 20192020 and December 31, 2018,2019, respectively. Based upon the diligence we customarily perform |
| |
(2) | Includes loans to "know our customers" for anti-money laundering, OFAC and sanctions purposes, and a preliminary reviewborrowers in other countries which do not individually exceed one percent of total assets in any of the Executive Order issued by the President of the United States on August 5, 2019 and the related Treasury Department Guidance, we do not believe that the U.S. economic embargo on certain Venezuela persons will adversely affect our Venezuela customer relationships, generally.reported periods. |
(2) Includes loans to borrowers in other countries which do not individually exceed one percent of total assets in any of the reported periods.
| |
(3) | Consists of outstanding principal amounts, net of cash collateral, cash equivalents or other financial instruments totaling $20.6$11.9 million and $19.5$15.2 million as of June 30, 20192020 and December 31, 2018,2019, respectively. |
75
During the six months ended June 30, 2019, we continued the strategy to reduce the international commercial loan exposure. As a result, loans to international customers, mainly companies and financial institutions in Brazil, Colombia and other countries decreased $85.0 million, or 28.3%, in 2019 compared to 2018, mostly as a result of decline in Venezuela, Brazil and Colombia loan exposures.
Loan Quality
Allocation of Allowance for Loan Losses
In the following table, we present the allocation of the allowance for loan lossesALL by loan segment at the end of the periods presented. The amounts shown in this table should not be interpreted as an indication that charge-offs in future periods will occur in these amounts or percentages. These amounts represent our best estimates of losses incurred, but not yet identified, at the reported dates, derived from the most current information available to us at those dates and, therefore, do not include the impact of future events that may or may not confirm the accuracy of
those estimates at the dates reported. Our allowance for loan lossesALL is established using estimates and judgments, which consider the views of our regulators in their periodic examinations. We also show the percentage of each loan class, which includes loans in nonaccrual status.
| | | June 30, 2019 | | December 31, 2018 | June 30, 2020 | | December 31, 2019 |
| Allowance | | % of Loans in Each Category to Total Loans | | Allowance | | % of Loans in Each Category to Total Loans | Allowance | | % of Loans in Each Category to Total Loans | | Allowance | | % of Loans in Each Category to Total Loans |
(in thousands, except percentages)
| | |
Domestic Loans | | | | | | | | | | | | | | |
Real estate | $ | 21,900 |
| | 53.8 | % | | $ | 22,778 |
| | 51.3 | % | $ | 54,498 |
| | 49.8 | % | | $ | 25,040 |
| | 51.7 | % |
Commercial | 25,334 |
| | 35.5 | % | | 29,278 |
| | 37.0 | % | 56,783 |
| | 38.9 | % | | 22,132 |
| | 38.1 | % |
Financial institutions | 42 |
| | 0.3 | % | | 41 |
| | 0.3 | % | — |
| | 0.3 | % | | 42 |
| | 0.3 | % |
Consumer and others (1) | 2,006 |
| | 6.7 | % | | 1,985 |
| | 6.3 | % | 5,712 |
| | 8.3 | % | | 1,677 |
| | 6.9 | % |
| 49,282 |
| | 96.3 | % | | 54,082 |
| | 94.9 | % | 116,993 |
| | 97.3 | % | | 48,891 |
| | 97.0 | % |
| | | | | | | | | | | | | | |
International Loans (2) | | | | | | | | | | | | | | |
Commercial | 490 |
| | 1.0 | % | | 740 |
| | 1.2 | % | 796 |
| | 0.8 | % | | 350 |
| | 0.8 | % |
Financial institutions | 18 |
| | 0.1 | % | | 404 |
| | 0.8 | % | — |
| | — | % | | — |
| | — | % |
Consumer and others (1) | 7,614 |
| | 2.6 | % | | 6,536 |
| | 3.1 | % | 1,863 |
| | 1.9 | % | | 2,982 |
| | 2.2 | % |
| 8,122 |
| | 3.7 | % | | 7,680 |
| | 5.1 | % | 2,659 |
| | 2.7 | % | | 3,332 |
| | 3.0 | % |
| | | | | | | | | | | | | | |
Total Allowance for Loan Losses | $ | 57,404 |
| | 100.0 | % | | $ | 61,762 |
| | 100.0 | % | $ | 119,652 |
| | 100.0 | % | | $ | 52,223 |
| | 100.0 | % |
% of Total Loans | 0.99 | % | | | | 1.04 | % | | | 2.04 | % | | | | 0.91 | % | | |
__________________
| |
(1) | Includes: (i) credit card receivables to cardholders for whom charge privileges have been stopped as of June 30,December 31, 2019; and (ii) mortgage loans for and secured by single-family residential properties located in the U.S.The total allowance for loan losses, after the charge-offs, for credit card receivables totaled $1.8 million at December 31, 2019. Outstanding credit card balances were repaid during the first quarter of 2020, therefore, there is no allowance for the credit card product as of June 30, 2020. |
| |
(2) | Includes transactions in which the debtor or customer is domiciled outside the U.S. and all collateral is located in the U.S. |
In the first half of 2020, the shift in the allocation of the ALL was driven by the allocation of the loan loss provisions increase due to the estimated impact of the COVID-19 pandemic among the respective impacted portfolios, mostly domestic real estate, domestic commercial and domestic consumer. In addition, the shift in the allocation of the ALL reflects loan composition changes, primarily driven the purchase of domestic consumer loans and the reduction of the international credit cards.
Non-Performing Assets
In the following table, we present a summary of our non-performing assets by loan class, which includes non-performing loans by portfolio segment, both domestic and international, and other real estate owned, or OREO, at the dates presented. Non-performing loans consist of (i) nonaccrual loans;loans where the accrual of interest has been discontinued; (ii) accruing loans 90 days or more contractually past due as to interest or principal; and (iii) restructured loans that are considered “troubled debt restructurings” (“TDRs”).TDRs. | | | June 30, 2019 | | December 31, 2018 | June 30, 2020 | | December 31, 2019 |
(in thousands)
| | |
Non-Accrual Loans (1) | | | | | | |
Domestic Loans: | | | | | | |
Real Estate Loans | | | | | | |
Commercial real estate (CRE) | | | | | | |
Nonowner occupied | $ | 1,964 |
| | $ | — |
| |
Multi-family residential | 657 |
| | — |
| |
Non-owner occupied | | $ | 8,426 |
| | $ | 1,936 |
|
Single-family residential | 8,111 |
| | 5,198 |
| 5,817 |
| | 5,431 |
|
Owner occupied | 10,528 |
| | 4,983 |
| 11,828 |
| | 14,130 |
|
| 21,260 |
| | 10,181 |
| 26,071 |
| | 21,497 |
|
Commercial loans | 10,032 |
| | 4,772 |
| |
Commercial loans (2) | | 48,961 |
| | 9,149 |
|
Consumer loans and overdrafts | 82 |
| | 11 |
| 40 |
| | 390 |
|
Total Domestic | 31,374 |
| | 14,964 |
| 75,072 |
| | 31,036 |
|
| | | | | | |
International Loans: (2) | | | | |
International Loans: (3) | | | | |
Real Estate Loans | | | | | | |
Single-family residential | 1,321 |
| | 1,491 |
| 2,158 |
| | 1,860 |
|
Consumer loans and overdrafts | 32 |
| | 24 |
| 30 |
| | 26 |
|
Total International | 1,353 |
| | 1,515 |
| 2,188 |
| | 1,886 |
|
Total Non-Accrual Loans | $ | 32,727 |
| | $ | 16,479 |
| $ | 77,260 |
| | $ | 32,922 |
|
| | | | | | |
Past Due Accruing Loans (3) | | | | |
Domestic Loans: | | | | |
Real Estate Loans | | | | |
Single-family residential | $ | — |
| | $ | 54 |
| |
Total Domestic | — |
| | 54 |
| |
Past Due Accruing Loans (4) | | | | |
| | | | | | |
International Loans: | | | | | | |
Real Estate Loans | | | | | | |
Single-family residential | — |
| | 365 |
| — |
| | — |
|
Consumer loans and overdrafts | 23 |
| | 884 |
| — |
| | 5 |
|
Total International | 23 |
| | 1,249 |
| — |
| | 5 |
|
Total Past Due Accruing Loans | $ | 23 |
| | $ | 1,303 |
| $ | — |
| | $ | 5 |
|
| | | | | | |
Total Non-Performing Loans | $ | 32,750 |
| | $ | 17,782 |
| $ | 77,260 |
| | $ | 32,927 |
|
Other Real Estate Owned | — |
| | 367 |
| 42 |
| | 42 |
|
Total Non-Performing Assets | $ | 32,750 |
| | $ | 18,149 |
| $ | 77,302 |
| | $ | 32,969 |
|
__________________
| |
(1) | Includes loan modifications that met the definition of TDRs that may be performing in accordance with their modified loan terms.As of June 30, 2020 and December 31, 2019, non-performing TDRs include $7.3 million and $9.8 million, respectively, in a multiple loan relationship to a South Florida borrower. |
| |
(2) | As of June 30, 2020, includes a $39.8 million commercial relationship placed in nonaccrual status during the second quarter of 2020. |
| |
(3) | Includes transactions in which the debtor or customer is domiciled outside the U.S., but where all collateral is located in the U.S. |
| |
(3)(4) | Loans past due 90 days or more but still accruing. |
At June 30, 2019,2020, non-performing assets increased $14.6$44.3 million, or 80.5%134.5%, compared to December 31, 2018.2019. The increase in non-performing assets was mainly due to the addition of a commercial loan relationship totaling $39.8 million, one CRE loan totaling $6.5 million, and due to multiple commercial and single family loans with individual balances below $0.5 million totaling $2.3 million, placed in non-accrual status during the first half of 2020. In addition, there were three commercial loans totaling $2.3 million placed in nonaccrual status during the first quarter of 2020. This increase was mainly attributed tooffset primarily by the deteriorationpayoff of a total of $11.6 million in a combination of CRE,one owner occupied commercialloan totaling $1.9 million, one residential loan totaling $0.2 million and residential loans to a South Florida customer inone consumer loan totaling $0.4 million; the food wholesale industry whose sales in Puerto Rico have not recovered from Hurricanes Irma and Maria in 2017. This relationship is comprisedcharge-off of four owner occupiedsix commercial loans totaling $4.7$3.2 million, oneand the pay-down of two commercial loan totaling $2.7$0.6 million and one CRE loan of $2.0 million, which had been classified special mention since June 2018. The loan relationship also includes fourthree single family residential loans totaling $2.2$0.6 million. As of June 30, 2019, all the loans in the relationship were further downgraded to substandard and placed in non-accrual.
On July 30, 2019, the Company agreed to restructure certain CRE, owner occupied and commercial loans totaling $9.4 million in a multiple loan relationship with a South Florida customer. This TDR restructure consisted of extending repayment terms and adjusting future periodic payments, and the Company determined no additional impairment charges were necessary. Four residential loans, totaling $2.2 million, which are included in this loan relationship, were not modified. The Company believes the specific reserves associated with these CRE, owner occupied, commercial loans and residential loans, which total a $11.6 million impaired loan relationship as of June 30, 2019, are adequate to cover probable losses given current facts and circumstances. The Company will continue to closely monitor the performance of these loans under their modified terms.
Additionally, during the quarter ended June 30, 2019, non-performing loans also increased due to a $2.4 million commercial loan and a $0.7 million CRE loan placed in nonaccrual status.
We recognized no interest income on nonaccrual loans during the six months ended June 30, 20192020 and 2018.2019. Additional interest income that we would have recognized on these loans had they been current in accordance with their original terms in the six months ended June 30, 2020 and 2019 and 2018 was $0.8$1.1 million and $0.7$0.8 million, respectively.
The Company’s loans by credit quality indicators are summarized in the following table. We have no purchased credit-impairedpurchased-credit-impaired loans.
| | | June 30, 2019 | | December 31, 2018 | June 30, 2020 | | December 31, 2019 |
(in thousands) | Special Mention | | Substandard | | Doubtful | | Total (1) | | Special Mention | | Substandard | | Doubtful | | Total (1) | Special Mention | | Substandard | | Doubtful | | Total (1) | | Special Mention | | Substandard | | Doubtful | | Total (1) |
Real Estate Loans | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial Real Estate (CRE) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Nonowner occupied | $ | 6,251 |
| | $ | 1,964 |
| | $ | — |
| | $ | 8,215 |
| | $ | 6,561 |
| | $ | 222 |
| | $ | — |
| | $ | 6,783 |
| |
Non-owner occupied | | $ | 2,127 |
| | $ | 7,242 |
| | $ | 1,936 |
| | $ | 11,305 |
| | $ | 9,324 |
| | $ | 762 |
| | $ | 1,936 |
| | $ | 12,022 |
|
Multi-family residential | — |
| | 657 |
| | — |
| | 657 |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Land development and construction loans | | 7,196 |
| | — |
| | — |
| | 7,196 |
| | 9,955 |
| | — |
| | — |
| | 9,955 |
|
| 6,251 |
| | 2,621 |
| | — |
| | 8,872 |
| | 6,561 |
| | 222 |
| | — |
| | 6,783 |
| 9,323 |
| | 7,242 |
| | 1,936 |
| | 18,501 |
| | 19,279 |
| | 762 |
| | 1,936 |
| | 21,977 |
|
Single-family residential | — |
| | 9,432 |
| | — |
| | 9,432 |
| | — |
| | 7,108 |
| | — |
| | 7,108 |
| — |
| | 8,127 |
| | — |
| | 8,127 |
| | — |
| | 7,291 |
| | — |
| | 7,291 |
|
Owner occupied | 9,476 |
| | 13,940 |
| | — |
| | 23,416 |
| | 9,019 |
| | 9,451 |
| | — |
| | 18,470 |
| 7,884 |
| | 14,142 |
| | — |
| | 22,026 |
| | 8,138 |
| | 14,240 |
| | — |
| | 22,378 |
|
| 15,727 |
| | 25,993 |
| | — |
| | 41,720 |
| | 15,580 |
| | 16,781 |
| | — |
| | 32,361 |
| 17,207 |
| | 29,511 |
| | 1,936 |
| | 48,654 |
| | 27,417 |
| | 22,293 |
| | 1,936 |
| | 51,646 |
|
Commercial loans | 5,332 |
| | 11,490 |
| | 539 |
| | 17,361 |
| | 3,943 |
| | 6,462 |
| | 589 |
| | 10,994 |
| |
Commercial loans (2) | | 5,664 |
| | 35,211 |
| | 20,822 |
| | 61,697 |
| | 5,569 |
| | 8,406 |
| | 2,669 |
| | 16,644 |
|
Consumer loans and overdrafts | — |
| | 4,421 |
| | — |
| | 4,421 |
| | — |
| | 6,062 |
| | — |
| | 6,062 |
| — |
| | 81 |
| | — |
| | 81 |
| | — |
| | 67 |
| | 357 |
| | 424 |
|
| $ | 21,059 |
| | $ | 41,904 |
| | $ | 539 |
| | $ | 63,502 |
| | $ | 19,523 |
| | $ | 29,305 |
| | $ | 589 |
| | $ | 49,417 |
| $ | 22,871 |
| | $ | 64,803 |
| | $ | 22,758 |
| | $ | 110,432 |
| | $ | 32,986 |
| | $ | 30,766 |
| | $ | 4,962 |
| | $ | 68,714 |
|
__________(1) There are no loans categorized as a “Loss” as of the dates presented.
(2) As of June 30, 2020, includes a $39.8 million in a commercial relationship placed in nonaccrual status and downgraded during the second quarter of 2020 ($20.5 million downgraded to substandard and $19.3 million downgraded to doubtful).
At June 30, 2019,2020, substandard loans increased $12.6$34.0 million, or 43.0%110.6%, compared to December 31, 2018. The2019, mainly due to the downgrade of the $39.8 million commercial loan relationship mentioned above, $20.5 million of the total $39.8 million was downgraded to substandard, coupled with the downgrade of one multi-loan relationship totaling $7.2 million. Also, the increase was mainly attributed to the deteriorationaddition of the $11.6 million of loans to a South Florida borrower in the food wholesale industry whose sales in Puerto Rico continue to be adversely affected by two hurricanes in 2017. These loans were placed on non-accrual when these were classified as substandard. Subsequently on July 30, 2019, the Company agreed to restructure certain CRE, owner occupied andten commercial loans within this relationship totaling $9.4$3.9 million and eight single-family loans totaling $1.8 million. Additionally,This increase was offset mainly by the increase is attributedcharge-off of six commercial loans totaling $3.0 million, the paydown of $4.1 million mainly due to a $2.4 million commercial loan and a $0.7 million CRE loan placed in non-accrual status, offset by a $0.8$2.3 million owner-occupied commercial real estate loan repayment within the period.properties and $1.1 million single family residential.
At June 30, 2019,2020, special mention loans increased $1.5decreased $10.1 million, or 7.9%30.7%, compared to December 31, 2018. The increase is attributed to2019, mainly due to: (i) upgrades two pass of three CRE loans totaling $9.3 million, one owner occupied loan for $0.9 million and one commercial loan of $0.4 million; (ii) paydowns of one construction loan totaling $2.6 million, four commercial loans totaling $3.9$1.2 million and (iii) the downgrade of three owner-occupied commercial real estate loans totaling $5.4$1.9 million to substandard. This was partially offset by the downgrade to special mention of three commercial loans totaling $3.5 million, two CRE loans totaling $2.2 million and one $1.8 million CREowner-occupied loan downgraded to special mention during the period, offset by the classification as substandard oftotaling $0.8 million. All special mention loans remain current.
At June 30, 2020, doubtful loans increased by $17.8 million, or 358.7%, mainly driven by the downgrade of $19.3 million included in the $11.6the aforementioned $39.8 million commercial loan relationship.
At December 31, 2019, approximately 95% of loans to a South Florida borrower previously discussed. These downgraded loans reflect individual loan performances which management believes do not reflect negative trends. Additionally, these downgraded loans are being monitoredour credit card holders were foreign, mostly Venezuelan, and did not generate any additional provisionsthe card receivables were reflecting the stresses in 2019.
the Venezuelan economy. Since late 2016, and consistent with industry practice, credit cards held by VenezuelaVenezuelan residents with outstanding balances above the corresponding customer’s average deposit balances with the Bank arewere classified substandard and charging privileges arewere suspended. At June 30,In April 2019, and December 31, 2018, this resulted in approximately $4.3 million and $6.0 million, respectively, in credit card receivables classified substandard. At June 30, 2019 and December 31, 2018, we had allowance for loan losses with respect to credit card balances of approximately $6.5 million and $5.4 million, respectively. At the beginning of 2018, the Company changed the monitoring of such credit cards and related deposit balances from quarterly to monthly. Deteriorating economic conditions in Venezuela could cause classified credit card balances, and charge offs to continue increasing.
Approximately 95% ofrevised our credit card holders are foreign, mostly Venezuelan, and the card receivables were reflecting the stresses in the Venezuela economy. In April 2019, the Company revised its credit card strategyprogram to further reduce itsstrengthen the Company’s overall credit exposure to international credit card customers and reduce its credit card losses. The Companyquality. We stopped charge privileges to its smallest andour riskiest cardholders and required repayment of their balances by November 2019. Other cardholders’In October 2019, we curtailed charge privileges will end in October 2019to the remaining cardholders and they will be required to repay allrepayment of their balances by January 2020. The Company reduced its credit card receivables from $33.9 million atAll amounts deemed uncollectible were charged off during 2019. At December 31, 2018 to $26.1 million at June 30, 2019, the outstanding balance and increased during the second quarter of 2019 itsassigned allowance for loan losses onafter the charge-offs was $11.1 million and $1.8 million, respectively. At December 31, 2019, there were no credit cards by $1.2classified as substandard. There were no outstanding credit card balances as of June 30, 2020.
Due to the changes to our credit card products previously discussed, credit card charge-offs during the first half of 2020 totaled $0.4 million, to a totalall of $6.5 million.which were already reserved. The Company entered into an arrangement withexperienced no unanticipated losses during the first half of 2020 as a major U.S.-based globalresult of the discontinuation of its credit card issuerproducts.
On March 26, 2020, the Company began offering customized loan payment relief options as a result of the impact of COVID-19, including interest payment deferral and began referring its international customersforbearance options. Loans outstanding which have been modified under these programs totaled $1.1 billion as of June 30, 2020, relatively flat compared to balances reported as of May 1, 2020. As of June 30, 2020, loans modified under these programs on which the U.S-based global card issuer in May.interest-only and/or forbearance period expired totaled $504.7 million, or 45.4% of total modified loans. The Company expectscollected payments due on $8.4 million of these loans through this date. Modified loans totaling $496.3 million have payments due by July 31, 2020. As of July 31, 2020, we have collected payments due on approximately $452.1 million of these loans. In accordance with accounting and regulatory guidance, loans to market this program to all its other foreign customers in Fall 2019.borrowers benefiting from these measures are not considered Troubled Debt Restructurings (“TDRs”). The Company is currently negotiating a similar referral program with another card issuer for its domestic customers.closely monitoring the performance of these loans under the terms of the temporary relief granted.
While the economic disruption caused by the COVID-19 pandemic is expected to impact the Company's credit quality, it is difficult to estimate the potential outcome due to the uncertain duration and scope of the slowdown in U.S. economic activity. The Company believes these changes will continue to reduceclosely monitor the performance of loans to borrowers in impacted sectors, and ultimately eliminatewill reassess its credit exposure and losses on international cards. The discontinuance of credit cards and repayment terms on existing credit card balances, however, may result in higher initial credit loss rates on existing card balances, until these balances are paid or charged-off.provisions as conditions evolve.
Potential problem loans, which are accruing loans classified as substandard and are less than 90 days past due, at June 30, 20192020 and December 31, 20182019, are as follows:
| | (in thousands) | June 30, 2019 | | December 31, 2018 | June 30, 2020 | | December 31, 2019 |
Real estate loans | | | | | | |
Commercial real estate (CRE) | | | | | | |
Nonowner occupied | $ | — |
| | $ | 222 |
| |
Non-owner occupied | | $ | 751 |
| | $ | 762 |
|
Single-family residential | | 151 |
| | — |
|
Owner occupied | 3,411 |
| | 4,468 |
| 2,314 |
| | 110 |
|
| 3,411 |
| | 4,690 |
| 3,216 |
| | 872 |
|
Commercial loans | 1,997 |
| | 2,433 |
| 7,073 |
| | 1,926 |
|
Consumer loans and overdrafts (1) | 4,285 |
| | 5,144 |
| 12 |
| | 9 |
|
| $ | 9,693 |
| | $ | 12,267 |
| $ | 10,301 |
| | $ | 2,807 |
|
__________
(1) IncludesCorresponds to international consumer loans of approximately $4.3 million and $5.1 million at each of the dates presented.loans.
At June 30, 2019,2020, total potential problem loans decreased $2.6increased $7.5 million, or 21.0%267.0%, compared to December 31, 2018.2019. The decreaseincrease is mainly attributed to a $0.9 million decrease in credit cards past due and a $0.8 million owner-occupied commercial real estate loan repayment, as well as repayments of other smaller loans during the period.one multi-loan relationship totaling $7.2 million.
Securities
The following table sets forth the book value and percentage of each category of securities at June 30, 20192020 and December 31, 2018.2019. The book value for debt securities classified as available for sale and equity securities represents fair value and the book value for debt securities classified as held to maturity represents amortized cost.
|
| | | | | | | | | | | | | |
| June 30, 2019 | | December 31, 2018 |
| Amount | | % | | Amount | | % |
(in thousands, except percentages)
| |
Securities held to maturity | | | | | | | |
U.S. Government sponsored enterprise debt | $ | 78,448 |
| | 4.8 | % | | $ | 82,326 |
| | 4.7 | % |
U.S. Government agency debt | 2,792 |
| | 0.1 | % | | 2,862 |
| | 0.2 | % |
| $ | 81,240 |
| | 4.9 | % | | $ | 85,188 |
| | 4.9 | % |
Securities available for sale: | | | | | | | |
U.S. Government sponsored enterprise debt | $ | 933,670 |
| | 56.6 | % | | $ | 820,779 |
| | 47.1 | % |
Corporate debt (1) | 271,706 |
| | 16.5 | % | | 352,555 |
| | 20.3 | % |
U.S. Government agency debt | 198,740 |
| | 12.0 | % | | 216,985 |
| | 12.5 | % |
Municipal bonds | 73,327 |
| | 4.4 | % | | 160,212 |
| | 9.2 | % |
Mutual funds (2) | 23,779 |
| | 1.4 | % | | 23,110 |
| | 1.3 | % |
Commercial paper | — |
| | — | % | | 12,410 |
| | 0.7 | % |
| $ | 1,501,222 |
| | 90.9 | % | | $ | 1,586,051 |
| | 91.1 | % |
Other securities (3): | | | | | | | |
FHLB stock | $ | 55,115 |
| | 3.4 | % | | $ | 57,179 |
| | 3.3 | % |
Federal Reserve Bank stock | 13,055 |
| | 0.8 | % | | 13,010 |
| | 0.7 | % |
| $ | 68,170 |
| | 4.2 | % | | $ | 70,189 |
| | 4.0 | % |
| $ | 1,650,632 |
| | 100.0 | % | | $ | 1,741,428 |
| | 100.0 | % |
|
| | | | | | | | | | | | | |
| June 30, 2020 | | December 31, 2019 |
| Amount | | % | | Amount | | % |
(in thousands, except percentages)
| |
Debt securities available for sale: | | | | | | | |
U.S. government agency debt | $ | 232,454 |
| | 13.9 | % | | $ | 228,397 |
| | 13.1 | % |
U.S. government sponsored enterprise debt | 831,920 |
| | 49.6 | % | | 933,112 |
| | 53.6 | % |
Corporate debt (1) (2) | 386,109 |
| | 23.1 | % | | 252,836 |
| | 14.5 | % |
U.S. Treasury debt | 2,515 |
| | 0.2 | % | | 104,236 |
| | 6.0 | % |
Municipal bonds | 66,786 |
| | 4.0 | % | | 50,171 |
| | 2.9 | % |
| $ | 1,519,784 |
| | 90.8 | % | | $ | 1,568,752 |
| | 90.1 | % |
| | | | | | | |
Debt securities held to maturity (3) | $ | 65,616 |
| | 3.9 | % | | $ | 73,876 |
| | 4.3 | % |
| | | | | | | |
Equity securities with readily determinable fair value not held for trading (4) | 24,425 |
| | 1.5 | % | | 23,848 |
| | 1.4 | % |
| | | | | | | |
Other securities (5): | $ | 64,986 |
| | 3.8 | % | | $ | 72,934 |
| | 4.2 | % |
| $ | 1,674,811 |
| | 100.0 | % | | $ | 1,739,410 |
| | 100.0 | % |
__________________
| |
(1) | June 30, 2020 and December 31, 2019 includes $12.1include $16.3 million and $5.2 million, respectively, in “investment-grade” quality debt securities issued by foreign corporate entitiesentities. The securities issuers were from EuropeCanada and Japan in three different sectors at June 30, 2020, and from Japan in the financial services sector.sector at December 31, 2018 includes $36.2 million in obligations issued by corporate entities from Europe and Japan in three different sectors.2019. The Company limits exposure to foreign investments based on cross border exposure by country, risk appetite and policy. All foreign investments are denominated in U.S. Dollars. |
| |
(2) | Includes a publicly offered investment company which seeks current incomeAs of June 30, 2020 and makes investments that qualify for Community Reinvestment Act (“CRA”) purposes.December 31, 2019, debt securities in the financial services sector issued by domestic corporate entities represent 2.4% and 1.3% of our total assets, respectively. |
| |
(3) | Includes securities issued by U.S. government and U.S. government sponsored agencies. |
| |
(4) | Includes an open-end fund incorporated in the U.S. The Fund's objective is to provide a high level of current income consistent with the preservation of capital and investments deemed to be qualified under the Community Reinvestment Act of 1977. |
| |
(5) | Includes investments in FHLB and Federal Reserve Bank stock. Amounts correspond to original cost at the date presented. Original cost approximates fair value because of the nature of these investments. |
The following tables set forth the book value, scheduled maturities and weighted average yields for our securities portfolio at June 30, 20192020 and December 31, 20182019. Similar to the table above, the book value for securities available for sale and equity securities is equal to fair market value and the book value for debt securities held to maturity is equal to amortized cost.
| | June 30, 2019 | |
June 30, 2020 | | June 30, 2020 |
(in thousands, except percentages) | Total | | Less than a year | | One to five years | | Five to ten years | | Over ten years | | No maturity | Total | | Less than a year | | One to five years | | Five to ten years | | Over ten years | | No maturity |
Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield | Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield |
Securities held to maturity | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Government sponsored enterprise debt | $ | 78,448 |
| | 2.72 | % | | $ | — |
| | — | % | | $ | — |
| | — |
| | $ | — |
| | — | % | | $ | 78,448 |
| | 2.72 | % | | $ | — |
| | — | % | |
U.S. Government agency debt | 2,792 |
| | 2.74 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,792 |
| | 2.74 |
| | — |
| | — |
| |
| $ | 81,240 |
| | 2.72 |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | 81,240 |
| | 2.72 |
| | $ | — |
| | — |
| | | | | | | | | | | | | | | | | | | | | | | |
Securities available for sale | | | | | | | | | | | | | | | | | | | | | | | | |
Debt securities available for sale | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Government sponsored enterprise debt | $ | 933,670 |
| | 2.87 | % | | $ | 675 |
| | 3.94 | % | | $ | 26,827 |
| | 2.67 | % | | $ | 108,013 |
| | 2.93 | % | | $ | 798,155 |
| | 2.87 | % | | $ | — |
| | — | % | $ | 831,920 |
| | 2.62 | % | | $ | 1,199 |
| | 2.79 | % | | $ | 27,583 |
| | 2.33 | % | | $ | 104,945 |
| | 2.69 | % | | $ | 698,193 |
| | 2.62 | % | | $ | — |
| | — | % |
Corporate debt-domestic | 259,612 |
| | 3.11 |
| | 43,078 |
| | 2.63 |
| | 170,345 |
| | 3.07 |
| | 46,189 |
| | 3.72 |
| | — |
| | — |
| | — |
| | — |
| 369,788 |
| | 3.21 | % | | 77,836 |
| | 3.05 | % | | 132,054 |
| | 2.50 | % | | 139,597 |
| | 3.67 | % | | 20,301 |
| | 5.30 | % | | — |
| | — | % |
U.S. Government agency debt | 198,740 |
| | 3.06 |
| | 529 |
| | 2.51 |
| | 9,262 |
| | 3.23 |
| | 18,066 |
| | 2.85 |
| | 170,883 |
| | 3.07 |
| | — |
| | — |
| 232,454 |
| | 2.11 | % | | 45 |
| | 3.52 | % | | 10,815 |
| | 1.70 | % | | 19,011 |
| | 1.63 | % | | 202,583 |
| | 2.18 | % | | — |
| | — | % |
Municipal bonds | 73,327 |
| | 3.23 |
| | — |
| | — |
| | — |
| | — |
| | 6,888 |
| | 2.99 |
| | 66,439 |
| | 3.25 |
| | — |
| | — |
| 66,786 |
| | 3.11 | % | | — |
| | — | % | | — |
| | — | % | | 47,652 |
| | 3.33 | % | | 19,134 |
| | 2.56 | % | | — |
| | — | % |
Corporate debt-foreign | 12,094 |
| | 3.48 |
| | — |
| | — |
| | 12,094 |
| | 3.48 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| 16,321 |
| | 2.89 | % | | — |
| | — | % | | 5,212 |
| | 1.30 | % | | 11,109 |
| | 3.63 | % | | — |
| | — | % | | — |
| | — | % |
Mutual funds | 23,779 |
| | 2.37 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 23,779 |
| | 2.37 |
| |
Commercial paper | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
U.S. treasury securities | | 2,515 |
| | 0.34 | % | | — |
| | — | % | | 2,515 |
| | 0.34 | % | | — |
| | — | % | | — |
| | — | % | | — |
| | — | % |
| | $ | 1,519,784 |
| | 2.71 | % | | $ | 79,080 |
| | 3.05 | % | | $ | 178,179 |
| | 2.36 | % | | $ | 322,314 |
| | 3.18 | % | | $ | 940,211 |
| | 2.58 | % | | $ | — |
| | — | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Debt securities held to maturity | | $ | 65,616 |
| | 2.38 | % | | $ | — |
| | — | % | | $ | — |
| | — | % | | $ | 11,515 |
| | 1.85 | % | | $ | 54,101 |
| | 2.49 | % | | $ | — |
| | — | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Equity securities with readily determinable fair value not held for trading | | 24,425 |
| | 2.05 | % | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 24,425 |
| | 2.05 | % |
| $ | 1,501,222 |
| | 2.95 |
| | $ | 44,282 |
| | 2.65 |
| | $ | 218,528 |
| | 3.05 |
| | $ | 179,156 |
| | 3.13 |
| | $ | 1,035,477 |
| | 2.93 |
| | $ | 23,779 |
| | 2.37 |
| | | | | | | | | | | | | | | | | | | | | | | |
Other securities | | | | | | | | | | | | | | | | | | | | | | | | $ | 64,986 |
| | 5.65 | % | | $ | — |
| | — | % | | $ | — |
| | — | % | | $ | — |
| | — | % | | $ | — |
| | — | % | | $ | 64,986 |
| | 5.65 | % |
FHLB stock | $ | 55,115 |
| | 6.54 | % | | $ | — |
| | — | % | | $ | — |
| | — | % | | $ | — |
| | — | % | | $ | — |
| | — | % | | $ | 55,115 |
| | 6.54 | % | |
Federal Reserve Bank stock | 13,055 |
| | 6.08 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 13,055 |
| | 6.08 |
| |
| $ | 68,170 |
| | 6.45 |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | 68,170 |
| | 6.45 |
| $ | 1,674,811 |
| | 2.80 | % | | $ | 79,080 |
| | 3.05 | % | | $ | 178,179 |
| | 2.36 | % | | $ | 333,829 |
| | 3.13 | % | | $ | 994,312 |
| | 2.58 | % | | $ | 89,411 |
| | 4.66 | % |
| $ | 1,650,632 |
| | 3.08 | % | | $ | 44,282 |
| | 2.65 | % | | $ | 218,528 |
| | 3.05 | % | | $ | 179,156 |
| | 3.13 | % | | $ | 1,116,717 |
| | 2.91 | % | | $ | 91,949 |
| | 5.40 | % | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2018 |
(in thousands, except percentages) | Total | | Less than a year | | One to five years | | Five to ten years | | Over ten years | | No maturity |
Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield |
Securities held to maturity | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Government sponsored enterprise debt | $ | 82,326 |
| | 2.84 | % | | $ | — |
| | — | % | | $ | — |
| | — |
| | $ | — |
| | — | % | | $ | 82,326 |
| | 2.84 | % | | $ | — |
| | — | % |
U.S. Government agency debt | 2,862 |
| | 2.73 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,862 |
| | 2.73 |
| | — |
| | — |
|
| $ | 85,188 |
| | 2.84 |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | 85,188 |
| | 2.84 |
| | $ | — |
| | — |
|
Securities available for sale | | | | | | | | | | | | | | | | | | | | | | | |
U.S. Government sponsored enterprise debt | $ | 820,779 |
| | 2.70 | % | | $ | 11 |
| | 5.16 | % | | $ | 29,807 |
| | 2.70 | % | | $ | 86,654 |
| | 2.78 | % | | $ | 704,307 |
| | 2.69 | % | | $ | — |
| | — | % |
Corporate debt-domestic | 316,387 |
| | 3.12 |
| | 40,804 |
| | 2.66 |
| | 249,709 |
| | 3.17 |
| | 25,874 |
| | 3.35 |
| | — |
| | — |
| | — |
| | — |
|
U.S. Government agency debt | 216,985 |
| | 2.83 |
| | 1,081 |
| | 2.70 |
| | 10,068 |
| | 2.61 |
| | 21,113 |
| | 2.71 |
| | 184,723 |
| | 2.86 |
| | — |
| | — |
|
Municipal bonds | 160,212 |
| | 3.11 |
| | — |
| | — |
| | — |
| | — |
| | 29,397 |
| | 3.02 |
| | 130,815 |
| | 3.13 |
| | — |
| | — |
|
Corporate debt-foreign | 36,168 |
| | 3.38 |
| | — |
| | — |
| | 36,168 |
| | 3.38 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Mutual funds | 23,110 |
| | 2.32 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 23,110 |
| | 2.32 |
|
Commercial paper | 12,410 |
| | 2.77 |
| | 12,410 |
| | 2.77 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| $ | 1,586,051 |
| | 2.85 |
| | $ | 54,306 |
| | 2.69 |
| | $ | 325,752 |
| | 3.13 |
| | $ | 163,038 |
| | 2.90 |
| | $ | 1,019,845 |
| | 2.78 |
| | $ | 23,110 |
| | 2.32 |
|
Other securities | | | | | | | | | | | | | | | | | | | | | | | |
FHLB stock | $ | 57,139 |
| | 6.19 | % | | $ | — |
| | — | % | | $ | — |
| | — | % | | $ | — |
| | — | % | | $ | — |
| | — | % | | $ | 57,139 |
| | 6.19 | % |
Federal Reserve Bank stock | 13,050 |
| | 5.69 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 13,050 |
| | 5.69 |
|
| $ | 70,189 |
| | 6.10 |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | 70,189 |
| | 6.10 |
|
| $ | 1,741,428 |
| | 2.98 | % | | $ | 54,306 |
| | 2.69 | % | | $ | 325,752 |
| | 3.13 | % | | $ | 163,038 |
| | 2.90 | % | | $ | 1,105,033 |
| | 2.78 | % | | $ | 93,299 |
| | 5.16 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2019 |
(in thousands, except percentages) | Total | | Less than a year | | One to five years | | Five to ten years | | Over ten years | | No maturity |
Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield |
| | | | | | | | | | | | | | | | | | | | | | | |
Debt securities available for sale | | | | | | | | | | | | | | | | | | | | | | | |
U.S. government sponsored enterprise debt | 933,112 |
| | 2.76 | % | | 2,296 |
| | 3.81 | % | | 23,781 |
| | 2.51 | % | | 113,341 |
| | 2.83 | % | | 793,694 |
| | 2.75 | % | | — |
| | — | % |
Corporate debt-domestic | 247,602 |
| | 2.97 |
| | 38,270 |
| | 2.59 |
| | 140,945 |
| | 2.90 |
| | 68,387 |
| | 3.34 |
| | — |
| | — |
| | — |
| | — |
|
U.S. government agency debt | 228,397 |
| | 2.76 |
| | 133 |
| | 2.46 |
| | 9,903 |
| | 2.53 |
| | 28,195 |
| | 2.82 |
| | 190,166 |
| | 2.76 |
| | — |
| | — |
|
U.S. Treasury debt securities | 104,236 |
| | 2.07 |
| | 6,765 |
| | 1.61 |
| | — |
| | — |
| | — |
| | — |
| | 97,471 |
| | 2.10 |
| | — |
| | — |
|
Municipal bonds | 50,171 |
| | 3.29 |
| | — |
| | — |
| | — |
| | — |
| | 29,371 |
| | 3.23 |
| | 20,800 |
| | 3.38 |
| | — |
| | — |
|
Corporate debt-foreign | 5,234 |
| | 2.82 |
| | — |
| | — |
| | 5,234 |
| | 2.82 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| 1,568,752 |
| | 2.76 |
| | 47,464 |
| | 2.51 |
| | 179,863 |
| | 2.83 |
| | 239,294 |
| | 3.02 |
| | 1,102,131 |
| | 2.71 |
| | — |
| | — |
|
| | | | | | | | | | | | | | | | | | | | | | | |
Debt securities held to maturity | 73,876 |
| | 2.50 | % | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 73,876 |
| | 2.50 | % | | — |
| | — |
|
Equity securities with readily determinable fair value not held for trading | 23,848 |
| | 2.13 | % | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 23,848 |
| | 2.13 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
Other securities | 72,934 |
| | 6.02 | % | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 72,934 |
| | 6.02 | % |
| $ | 1,739,410 |
| | 2.88 | % | | $ | 47,464 |
| | 2.51 | % | | $ | 179,863 |
| | 2.83 | % | | $ | 239,294 |
| | 3.02 | % | | $ | 1,176,007 |
| | 2.69 | % | | $ | 96,782 |
| | 5.06 | % |
The investment portfolio’s average duration was 3.12.6 years at June 30, 20192020 and 3.43.8 years at December 31, 20182019. These estimates are computed using multiple inputs that are subject, among other things, to changes in interest rates and other factors that may affect prepayment speeds. Contractual maturities of investment securities are adjusted for anticipated prepayments of amortizing U.S. Government sponsored agency debt securities and U.S. Government sponsored enterprise debt securities, which shorten the average lives of these investments.
Liabilities
Total liabilities decreased $256.5increased $149.8 million, or 3.5%2.1%, to $7.1$7.3 billion at June 30, 20192020 compared to $7.4$7.2 billion at December 31, 2018.2019. This decrease was primarily driven by lower$267.6 million, or 4.6%, in higher total deposits, mainly the result of noninterest bearing deposits, and repayments on$58.4 million outstanding amount of Senior Notes issued in the second quarter of 2020. These increases were partially offset by a $185.0 million, or 15.0%, decrease in advances from the FHLB.FHLB and the $28.1 million redemption of junior subordinated debentures in the first quarter of 2020. See “Capital Resources and Liquidity Management” for more detail on the issuance of Senior Notes and the redemption of trust preferred securities and related junior subordinated debt.
Deposits
Total deposits decreased $213.3increased $267.6 million, or 3.5%4.6%, to $6.0 billion at June 30, 2020 compared to $5.8 billion at June 30, 2019 compared to $6.0 billion at December 31, 2018.2019. In the six months ended June 30, 2019, decreases2020, increases of $105.0$193.1 million, or 25.3%, in noninterest bearing transaction accounts, $88.3 million, or 8.0%, in interest bearing deposits, $77.9and $13.7 million, in savings and money market deposit accounts and $47.4 millionor 0.6% in time deposits were partially offset by a $16.9decreases $27.6 million, or 1.9%, in savings and money market deposit accounts. The increase in noninterest bearing transaction accounts. These changesdeposits was mainly driven by: (i) the funds from the PPP loans originated during the second quarter of 2020, which small business customers have not fully utilized, totaling $132.7 million as of June 30, 2020; (ii) $67.8 million growth in reciprocal deposit account balances in the first half of 2020, and (iii) higher capture of online CDs. During the second quarter of 2020, the Company increasingly offered the reciprocal deposit product to certain customers who want to make their deposits and the deposit mix were largely affectedin excess of $250,000 fully eligible for FDIC insurance. This was partially offset by declines in deposits from Venezuelan resident customers, as discussed below. The decrease of $47.4$13.7 million increase in time deposits since December 31, 2019 includes an increase of $88.2 million in retail time deposits partially offset by a decline of $23.5$74.5 million in brokered time deposits and a decrease of $23.8 million in retail time deposits. The decreaseincrease in retail time deposits resulted from our strategic decisionwas mainly due to decrease the promotional interest rates we paid.an increase of $90.9 million , or 66.1%, in online deposits compared to December 31, 2019. We continue to focus our efforts to retain customers with higher probabilities of renewal at lower-than-marketlower market rates. Also, we have implemented a strategy for renewing CDs with lower probability of renewals through our promotions. These efforts led to time deposit renewals of approximately $211.2$224.0 million in the first half of 20192020 at rates that were lower than the highest rates paid in our markets.
Deposits by Country of Domicile
The following table shows deposits by country of domicile of the depositor as of the dates presented.presented and the changes during the period.
| | (in thousands) | June 30, 2019 | | December 31, 2018 | |
| | | | | | Change |
(in thousands, except percentages) | | June 30, 2020 | | December 31, 2019 | | Amount | | % |
Deposits | | | | | | | | | | |
Domestic | $ | 3,014,269 |
| | $ | 3,001,366 |
| |
Domestic (1) (2) | | $ | 3,432,971 |
| | $ | 3,121,827 |
| | $ | 311,144 |
| | 10.0 | % |
Foreign: | | | | | | | | | | |
Venezuela (1)(3) | 2,465,718 |
| | 2,694,690 |
| 2,202,340 |
| | 2,270,970 |
| | (68,630 | ) | | (3.0 | )% |
Others | 339,394 |
| | 336,630 |
| 389,391 |
| | 364,346 |
| | 25,045 |
| | 6.9 | % |
Total foreign | 2,805,112 |
| | 3,031,320 |
| 2,591,731 |
| | 2,635,316 |
| | (43,585 | ) | | (1.7 | )% |
Total deposits | $ | 5,819,381 |
| | $ | 6,032,686 |
| $ | 6,024,702 |
| | $ | 5,757,143 |
| | $ | 267,559 |
| | 4.6 | % |
_________________
| |
(1) | Includes brokered deposits of $587.9 million and $682.4 million at June 30, 2020 and December 31, 2019, respectively. |
| |
(2) | Domestic deposits, excluding brokered, were up $405.6 million or 16.6%, compared to December 31, 2019. |
| |
(3) | Based upon the diligence we customarily perform to "know our customers" for anti-money laundering, OFAC and sanctions purposes, and a preliminary review of the Executive Order issued by the President of the United States on August 5, 2019 and the related Treasury Department Guidance, we do not believe that the U.S. economic embargo on certain VenezuelaVenezuelan persons will adversely affect our VenezuelaVenezuelan customer relationships, generally. |
Our domestic deposits have increased almost every year since 2014, while our total foreign deposits, especially deposits from Venezuelan residents, have declined during the same period. Most of the Venezuelan withdrawals from deposit accounts at the Bank are believed to be due to the effect of adverse economic conditions in Venezuela on our Venezuelan resident customers. In the second quarter of 2020, the pace of utilization of deposits from our Venezuelan customers declined mainly due to lower economic activity in their country currently attributable to the COVID-19 pandemic.
Our other foreign deposits include deposits from non-Venezuelan affiliates of the Former Parent, and do not include deposits from Venezuelans.
The following table shows the amounts and percentage changes in our domestic and foreign deposits, including Venezuelan resident customer deposits, for the six months ended June 30, 2019 and the year ended December 31, 2018.customers.
|
| | | | | | | | | | | | | |
| Six Months Ended | | Year Ended |
(in thousands, except percentages) | June 30, 2019 | | December 31, 2018 |
| Amount | | % | | Amount | | % |
Deposits | | | | | | | |
Domestic | $ | 12,903 |
| | 0.4 | % | | $ | 178,567 |
| | 6.3 | % |
Foreign: | | | | | | | |
Venezuela | (228,972 | ) | | (8.5 | )% | | (453,221 | ) | | (14.4 | )% |
Others | 2,764 |
| | 0.8 | % | | (15,633 | ) | | (4.4 | )% |
Total foreign | (226,208 | ) | | (7.5 | )% | | (468,854 | ) | | (13.4 | )% |
Total deposits | $ | (213,305 | ) | | (3.5 | )% | | $ | (290,287 | ) | | (4.6 | )% |
During the six months ended June 30, 2019,2020, deposits from customers domiciled in Venezuela decreased by $229.0$68.6 million, or 8.5%3.0%, to $2.5$2.2 billion, compared to December 31, 2018. In2019. While customers in Venezuela continue to use their deposits to cover every day expenses, the pace of utilization of these deposits further declined during the second quarter of 2020 attributable the lower economic activity in their country currently attributable to the COVID-19 pandemic.
During the first half of 2020, foreign deposits, which include deposits from other countries in addition to Venezuela, decreased by $43.6 million or 1.7%, compared to December 31, 2019, as living conditions in Venezuela remain difficult, our Venezuelan resident customers continued to rely on their U.S. Dollar savings to fund daily living expenses. The annualrepresenting an annualized decline rate of decline3.3% in our Venezuela deposits during the first six monthshalf of 2019 was higher2020 compared to that realizedan annualized decline rate of 13.1% during 2018. The annualized international deposit runoff rate was 14.4% in2019. We attributed these results to the second quartercombination of 2019. As we expect this runoff to continue into the next few quarters, we continue to proactively focus on growing our core domestic deposits, while seeking to reduce attrition in our valued Venezuelan customers’ deposits, by emphasizing and rewarding strong multi-product relationships. We launched the “Amerant Relationship Rewards Program” in July 2019, which focuses on expanding client relationships through tiered reward cash incentives to qualifying customers, and we have realigned our incentive compensation to promote our relationship-driven model and increase core deposits from our commercial customer base. We are also actively working to increase ourteam's sales efforts capturing more share of wallet, with the lower pace of select high net worth internationalthe economic activity in Venezuela as a result of the COVID-19 pandemic.
Fostering deeper relationships with existing customers with whom we maintain strong long-term relationships.to capture additional share of wallet remains a priority, and the Company continues to enhance its customer engagement initiatives, including increased targeted call campaigns and providing relevant training to its sales teams in support of these efforts. The Company’s successful participation in the SBA’s PPP has introduced us to prospective commercial lending opportunities and new customer deposit relationships which will be strengthened by offering products and services that address the needs of these customers.
The Bank uses the Federal Financial Institutions Examination Council’s (the “FFIEC”) Uniform Bank Performance Report (the “UBPR”) definition of “core deposits”, which exclude brokered time deposits and retail time deposits of $250,000 or more.more than $250,000. Our core deposits were $4.5$4.7 billion and $4.7$4.3 billion as of June 30, 20192020 and December 31, 2018,2019, respectively. Core deposits represented 76.7%77.2% and 77.5%75.4% of our total deposits at those dates, respectively. The decline in core deposits since December 31, 2018 resulted primarily from Venezuelan resident customers drawing down their account balances as mentioned above, partially offset by increases in domestic deposits.
We utilize brokered deposits and, as of June 30, 2019,2020, we had $618.6$587.9 million in brokered deposits, which represented 10.6%9.8% of our total deposits.deposits at that date. Our June 30, 20192020, brokered deposits were down $23.5$94.5 million, or 3.7%13.8%, compared to $642.1$682.4 million as of December 31, 2018. This decrease reflects2019, mainly due to the continuation of our planned decrease inmatured brokered CDs deposits.which were not replaced during the first half of 2020. The Company has not historically sold brokered CDs in denominations over $100,000.
Large Fund Providers
At June 30, 20192020 and December 31, 2018,2019, our large fund providers, defined as third-party customer relationships with balances of over $10 million, included nineeleven and sixeight deposit relationships, respectively, with total balances of $131.1$217.3 million and $74.4$116.9 million, respectively. As of June 30, 2020, the total $217.3 million in relationships with balances over $10 million includes $50.0 million in reciprocal deposits. This $50.0 million in reciprocal deposits are part of the previously mentioned $67.8 million growth in reciprocal deposit account balances in the first half of 2020. Additionally, deposits from ourthe Company’s Former Parent or its non-U.S. affiliates at June 30, 20192020 and December 31, 20182019 totaled $5.9$11.1 million and $9.6$7.9 million, respectively. These deposits of our Former Parent and its non-U.S. affiliates are expected to continue to decline further in 2019.
Large Time Deposits by Maturity
The following table sets forth the maturities of our time deposits with individual balances equal to or greater than $100,000 as of June 30, 2020 and December 31, 2019:
| | | June 30, 2019 | June 30, 2020 | | December 31, 2019 |
(in thousands, except percentages)
| | | | |
Less than 3 months | $ | 281,653 |
| | 20.3 | % | $ | 323,709 |
| | 21.5 | % | | $ | 291,075 |
| | 20.4 | % |
3 to 6 months | 203,195 |
| | 14.6 | % | 343,480 |
| | 22.8 | % | | 358,061 |
| | 25.1 | % |
6 to 12 months | 485,987 |
| | 35.0 | % | 479,385 |
| | 31.8 | % | | 393,555 |
| | 27.6 | % |
1 to 3 years | 202,649 |
| | 14.6 | % | 231,786 |
| | 15.4 | % | | 181,105 |
| | 12.7 | % |
Over 3 years | 216,532 |
| | 15.5 | % | 130,395 |
| | 8.5 | % | | 204,303 |
| | 14.2 | % |
Total | $ | 1,390,016 |
| | 100.0 | % | $ | 1,508,755 |
| | 100.0 | % | | $ | 1,428,099 |
| | 100.0 | % |
Short-Term Borrowings
In addition to deposits, we use short-term borrowings, such as FHLB advances and borrowings from other banks, as a source of funds to meet the daily liquidity needs of our customers and fund growth in earning assets. Short-term borrowings have maturities of 12 months or less as of the reported period-end. There were no outstanding short-term borrowings at June 30, 2020. All of our outstanding short-term borrowings at June 30, 2019 and December 31, 20182019 correspond to FHLB advances.
The following table sets forth information about the outstanding amounts of our short-term borrowings at the close of, and for the six months ended June 30, 20192020 and for the year ended December 31, 2018.2019. There were no repurchase agreements outstanding as of June 30, 2020 and December 31, 2019.
| | | June 30, 2019 | | December 31, 2018 | June 30, 2020 | | December 31, 2019 |
(in thousands, except percentages) | | | | | | |
Outstanding at period-end | $ | 600,000 |
| | $ | 440,000 |
| $ | — |
| | $ | 285,000 |
|
Average amount | 503,333 |
| | 505,417 |
| 167,500 |
| | 478,333 |
|
Maximum amount outstanding at any month-end | 600,000 |
| | 632,000 |
| 300,000 |
| | 600,000 |
|
Weighted average interest rate: | | | | | | |
During period | 2.46 | % | | 2.10 | % | 1.45 | % | | 2.29 | % |
End of period | 2.35 | % | | 2.52 | % | — | % | | 1.93 | % |
86
Return on Equity and Assets
The following table shows annualized return on average assets, return on average equity, and average equity to average assets ratio for the periods presented:
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
(in thousands, except percentages and per share data)
| |
Net income | $ | 12,857 |
| | $ | 10,423 |
| | $ | 25,928 |
| | $ | 19,852 |
|
Basic earnings per common share | 0.30 |
| | 0.25 |
| | 0.61 |
| | 0.47 |
|
Diluted earnings per common share (1) | 0.30 |
| | 0.25 |
| | 0.60 |
| | 0.47 |
|
| | | | | | | |
Average total assets | $ | 7,867,120 |
| | $ | 8,419,040 |
| | $ | 7,964,677 |
| | $ | 8,413,434 |
|
Average stockholders' equity | 786,123 |
| | 748,024 |
| | 773,451 |
| | 747,905 |
|
Net income / Average total assets (ROA) | 0.66 | % | | 0.50 | % | | 0.66 | % | | 0.47 | % |
Net income / Average stockholders' equity (ROE) | 6.56 | % | | 5.57 | % | | 6.76 | % | | 5.31 | % |
Average stockholders' equity / Average total assets ratio | 9.99 | % | | 8.88 | % | | 9.71 | % | | 8.89 | % |
| | | | | | | |
Adjusted net income (2) | $ | 15,005 |
| | $ | 14,142 |
| | $ | 28,808 |
| | $ | 25,831 |
|
Adjusted earnings per common share (2) | 0.35 |
| | 0.33 |
| | 0.68 |
| | 0.61 |
|
Adjusted earnings per diluted common share (2) | 0.35 |
| | 0.33 |
| | 0.67 |
| | 0.61 |
|
| | | | | | | |
Adjusted net income / Average total assets (Adjusted ROA) (2) | 0.77 | % | | 0.67 | % | | 0.73 | % | | 0.61 | % |
Adjusted net income / Average stockholders' equity (Adjusted ROE) (2) | 7.66 | % | | 7.56 | % | | 7.51 | % | | 6.91 | % |
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
(in thousands, except percentages and per share data)
| |
Net (loss) income | $ | (15,279 | ) | | $ | 12,857 |
| | $ | (11,897 | ) | | $ | 25,928 |
|
Basic (loss) earnings per common share | (0.37 | ) | | 0.30 |
| | (0.28 | ) | | 0.61 |
|
Diluted (loss) earnings per common share (1) | (0.37 | ) | | 0.30 |
| | (0.28 | ) | | 0.60 |
|
| | | | | | | |
Average total assets | $ | 8,148,199 |
| | $ | 7,867,120 |
| | $ | 8,049,526 |
| | $ | 7,964,677 |
|
Average stockholders' equity | 852,040 |
| | 786,123 |
| | 847,875 |
| | 773,451 |
|
Net (loss) income / Average total assets (ROA) | (0.75 | )% | | 0.66 | % | | (0.30 | )% | | 0.66 | % |
Net (loss) income / Average stockholders' equity (ROE) | (7.21 | )% | | 6.56 | % | | (2.82 | )% | | 6.76 | % |
Average stockholders' equity / Average total assets ratio | 10.46 % |
| | 9.99 | % | | 10.53 % |
| | 9.71 | % |
| | | | | | | |
Adjusted net (loss) income (2) | $ | (14,234 | ) | | $ | 15,005 |
| | $ | (10,572 | ) | | $ | 28,808 |
|
Adjusted (loss) earnings per common share (2) | (0.34 | ) | | 0.35 |
| | (0.25 | ) | | 0.68 |
|
Adjusted (loss) earnings per diluted common share (2) | (0.34 | ) | | 0.35 |
| | (0.25 | ) | | 0.67 |
|
| | | | | | | |
Adjusted net (loss) income / Average total assets (Adjusted ROA) (2) | (0.70 | )% | | 0.77 | % | | (0.26 | )% | | 0.73 | % |
Adjusted net (loss) income / Average stockholders' equity (Adjusted ROE) (2) | (6.72 | )% | | 7.66 | % | | (2.51 | )% | | 7.51 | % |
__________________
| |
(1) | As of June 30, 2020 and 2019 potential dilutive instruments consisted of unvested shares of restricted stock and restricted stock units mainly related to the Company’s IPO in 2018, totaling 491,360 and 789,652, respectively. As of June 30, 2020, potential dilutive instruments were not included in the diluted earnings per share computation because the Company reported a net loss and their inclusion would have an antidilutive effect. As of June 30, 2019, potential dilutive instruments included 738,138 unvested shares of restricted stock, including 736,839 shares of restricted stock issued in December 2018 in connection with the Company’s IPO and 1,299 additional shares of restricted stock issued in January 2019. As of June 30, 2019, these 738,138 unvested shares of restricted stock were included in the diluted earnings per share computation because, when the unamortized deferred compensation cost related to these shares was divided by the average market price per share at that date, fewer shares would have been purchased than restricted shares assumed issued. Therefore, at that date, such awards resulted in higher diluted weighted average shares outstanding than basic weighted average shares outstanding, in the three and six months ended June 30, 2019, and had a dilutive effect in per share earnings in the three (not shown due to rounding) and six months ended June 30, 2019. We had no outstanding dilutive instruments as of June 30, 2018.earnings. |
| |
(2) | See “Selected Financial Information” for an explanation of certain non-GAAP financial measures and see “Non-GAAP Financial Measures Reconciliation” for a reconciliation of the non-GAAP financial measures to their GAAP counterparts. |
During the three and six month periodsmonths ended June 30, 2019,2020, basic and diluted earningsloss per share increased as ais the result of higherthe net incomeloss recorded in the three and six month periodsmonths ended June 30, 2019 compared to the same periods one year ago.
2020.
Capital Resources and Liquidity Management
Capital Resources.
Stockholders’ equity is influenced primarily by earnings, dividends, if any, and changes in accumulated other comprehensive income or loss (AOCI/AOCL)(AOCI) caused primarily by fluctuations in unrealized holding gains or losses, net of taxes, on debt securities available for sale securities. AOCI/AOCLsale. AOCI is not included for purposes of determining our capital for bank regulatory purposes.
Stockholders’ equity increased $59.0decreased $4.5 million, or 7.9%0.5%, to $806.4$830.2 million as of June 30, 2019 as2020 compared to $834.7 million as of December 31, 2018,2019, primarily due to $25.9to: (i) $11.9 million of net incomeloss in the six months ended June 30, 2019,2020, and (ii) $15.2 million repurchase of shares of Class B common stock completed in the first quarter of 2020. This was partially offset by a $29.3$21.5 million increase in AOCI resulting primarily from a higher valuation of debt securities available for sale compared to December 31, 2018,2019.
Class B Common Stock Repurchase. On February 14 and February 21, 2020, the Company’s amortizationCompany repurchased an aggregate of stock-based compensation932,459 shares of its outstanding Class B Common Stock in two privately negotiated transactions for an aggregate purchase price of $15.2 million, including $0.3 million in broker fees and other expenses. These 932,459 shares of Class B common stock were recorded as treasury stock under the cost method. The Company used available cash to fund these repurchases.
Cancellation of Treasury Shares. In March 2020, Company’s Board of Directors authorized the cancellation of all 4,464,916 shares of Class B Common Stock previously held as treasury stock, including shares repurchased during 2018, restricted stock award related to the IPO. The higher valuation of securities available for sale during 2019 caused the Company’s deferred tax assets to decline approximately $9.3 million, or 57.0%, to $7.0 million as of June 30, 2019, as the unrealized gains and losses included in AOCI are reported in stockholder’s equity on an after-tax basis.2020, effective March 31, 2020.
Liquidity Management.
At June 30, 2020 and December 31, 2019, the Company had $1.1$1.05 billion and $1.24 billion, respectively, of outstanding advances from the FHLB and other borrowings, compared to $1.2 billion at December 31, 2018.FHLB. At June 30, 20192020 and December 31, 2018,2019, we had an additional $1.2$1.4 billion and $1.1 billion, respectively, available under FHLB facilities. During the six months ended June 30, 2019,2020, the Company repaid $630$885 million of outstanding advances from the FHLB, and other borrowings, and obtained new borrowing proceeds of $590borrowed $700 million from these sources.this source. There were no other borrowings as of June 30, 2020 and December 31, 2019.
The following table summarizes the composition of our FHLB advances by type of interest rate: | | | June 30, 2019 | | December 31, 2018 | June 30, 2020 | | December 31, 2019 |
(in thousands)
| | |
Advances from the FHLB and other borrowings: | | | | | | |
Fixed rate ranging from 1.50% to 3.86% | $ | 845,000 |
| | $ | 886,000 |
| |
Floating rate based on 3-month LIBOR ranging from 2.32% to 2.63% (December 31, 2018 - 2.40% to 2.82%) (1) | 280,000 |
| | 280,000 |
| |
Fixed rate ranging from 0.62% to 2.42% (December 31, 2019 - 0.71% to 3.23%) (1) | | $ | 1,050,000 |
| | $ | 1,085,000 |
|
Floating rate three-month LIBOR ranging from 1.84% to 2.03% | | — |
| | 150,000 |
|
| $ | 1,125,000 |
| | $ | 1,166,000 |
| $ | 1,050,000 |
| | $ | 1,235,000 |
|
__________________ | |
(1) | AtAs of June 30, 2020 and December 31, 2018, we had designated certain2019, includes $530 million (fixed interest rate swaps as cash flow hedgesraging from 0.62% to manage this variable interest rate exposure. In March 2019,0.97%) in advances from the Company terminated these interest rate swap contracts. As a result, the Company received cash equalFHLB that are callable prior to the contracts’ fair value at the date of termination of approximately $8.9 million which is recorded in AOCI. This amount will be amortized over the original remaining lives of the contracts as an offset to interest expense on the Company’s FHLB advances. The Company recorded a credit of approximately $0.5 million against interest expense on FHLB advances in the first half of 2019 and expects to record a credit of approximately $0.7 million in the rest of 2019.maturity. |
At December 31, 2018, we had designated certain interest rate swaps as cash flow hedges to manage this variable interest rate exposure. In the first quarter of 2019, the Company terminated these interest rate swap contracts. As a result, the Company received cash equal to the contracts’ fair value at the date of termination of approximately $8.9 million which is recorded in AOCI. This amount is being amortized over the original remaining lives of the contracts as an offset to interest expense on the Company’s FHLB advances. The Company recorded a credit of approximately $0.7 million against interest expense on FHLB advances in the first half of 2020 ($0.5 million in the first half of 2019) and expects to record a credit of approximately $0.7 million in the rest of 2020.
In early April 2020, the Company restructured $420.0 million of its fixed-rate FHLB advances extending their original maturities from 2021 to 2023 at lower interest rates. The Company incurred a loss of $17.0 million as a result of the restructuring which was blended into the new interest rates of these advances, affecting the yields through their remaining maturities. The Company accounted for these transactions as the modification of existing debt in accordance with U.S. GAAP.
At June 30, 2019,2020, advances from the FHLB had maturities through 20232030 with interest rates ranging from 1.50%0.62% to 3.86%2.42%.
We also maintain federal funds lines with several banks, and had $72.0 million and $35.5 million of availability under these lines at June 30, 2019 and December 31, 2018, respectively. We expect to continue taking FHLB funding, as needed, in short duration maturities.
We also maintain federal funds lines with several banks, and had $65.0 million of availability under these lines at June 30, 2020 and December 31, 2019.
On June 23, 2020, the Company completed a $60.0 million offering of Senior Notes with a coupon rate of 5.75% and due 2025. The net proceeds, after direct issuance costs of $1.6 million, totaled $58.4 million. The Senior Notes are presented net of direct issuance costs in the consolidated financial statements. These costs are deferred and amortized over 5 years. The Senior Notes, which are fully and unconditionally guaranteed by the Company’s wholly-owned subsidiary, Amerant Florida Bancorp Inc., or Amerant Florida, provided the Company with a new source of funding as we continue to navigate the COVID-19 pandemic.
We and our subsidiary Amerant Florida are a corporationcorporations separate and apart from the Bank and, therefore, must provide for our own liquidity. Our main source of funding is dividends declared and paid to us and Amerant Florida by the Bank. Additionally, ourThe Company, which is the issuer of the Senior Notes, held cash and cash equivalents of $99.5 million as of June 30, 2020, in funds available to service its Senior Notes, as a separate stand-alone entity. Our subsidiary Amerant Florida Bancorp Inc., formerly Mercantil Florida Bancorp Inc., or Amerant Florida, which is an intermediate bank holding company, and the obligor on our junior subordinated debt and the guarantor of the Senior Notes, held cash and cash equivalents of $43.4$19.1 million as of June 30, 20192020 and $32.9$48.9 million as of December 31, 20182019, respectively, in funds available to service thisits junior subordinated debt. Of thisdebt, as a separate stand-alone entity. In the first quarter of 2020, we used $27.1 million of Amerant Florida’s cash $25.5 million will be used to redeem the outstanding trust preferred securities issued by its Statutory Trust II and its Capital Trust III subsidiary,I and the related junior subordinated debt issued by Amerant Florida.
On July 10, 2019We have not provided summarized financial information for the Company announcedand Amerant Florida as we do not believe it would be material information since the redemptionassets, liabilities and results of operations of the Company and Amerant Florida are not materially different from the amounts reflected in the consolidated financial statements of the Company.
COVID-19 Pandemic
Our deposits and wholesale funding operations, including advances from the FHLB, Senior Notes and other short-term borrowings, have historically supplied us with a significant source of liquidity. These sources have been sufficient to fund our operations while allowing us to invest in activities that support the long-term growth of our business. We evaluate our funding requirements on a regular basis to cover any potential shortfall in our ability to generate sufficient cash from operations to meet our capital requirements. We may consider funding alternatives to provide additional liquidity when necessary. There is some uncertainty surrounding the potential impact of the COVID-19 outbreak on our results of operations and cash flows. As a result, we are proactively taking steps to increase cash available on-hand, including, but not limited to, the repositioning of our investment portfolio, and seeking to extend the duration of and reduce the cost on, our long-term debt, primarily advances from the FHLB. Cash and cash equivalents increased $96.0 million or 79.1% in the six months ended June 30, 2020 attributable to higher balances at the Federal Reserve and include the net proceeds of $58.4 million from the issuance of Senior Notes completed during the three months ended June 30, 2020. This increase in Cash and cash equivalents includes proceeds from the aforementioned issuance of Senior Notes. See —Cash and Cash Equivalents. In addition, in early April 2020, the Company modified maturities on $420.0 million fixed-rate FHLB advances. See earlier discussion in this section.
Redemption of Junior Subordinated Debentures
On January 30, 2020, the Company redeemed all $15.0$26.8 million of its outstanding 10.60%8.90% trust preferred capital securities issued by its Statutory Trust II subsidiary, and all $10.0 million of its outstanding 10.18% trust preferred securities issued by its Capital Trust III subsidiary. The Capital Trust III securities were redeemed on July 31, 2019I at the contractual calla redemption price of 101.018% and the Statutory Trust II securities will be redeemed on September 7, 2019, the earliest call date, at the contractual call price of 100.530%100%. The Company will simultaneously redeemredeemed all $15.5 million and $10.4 million junior subordinated debentures held by its Statutory Trust II and Capital Trust III, respectively,I as part of thesethis redemption transactions. These redemptions together will reducetransaction. This redemption reduced total cash and cash equivalents by approximately $23.8$27.1 million, financial liabilities by approximately $25.9$28.1 million, other assets by $3.4 million, and other assetsliabilities by approximately $2.4 million.$2.2 million at that date. In addition, third quarter 2019 results will includethe Company recorded a total charge of $0.3 million during the first quarter of 2020 for the premiums paid to security holders from these redemptions. Theunamortized issuance costs. This redemption of these legacy Tier 1 capital instruments will reducereduced the Company’s Tier 1 equity capital at that date by a totalnet of $23.5$24.7 million and pretax annual interest expense by $2.4 million.
There are statutory and regulatory limitations that affect the ability of the Bank to pay dividends to the Company. These limitations exclude the effects of AOCI/AOCL.AOCI. Management believes that these limitations will not affect the Company’s ability, and Amerant Florida’s ability, to meet their ongoing short-term cash obligations. See “Supervision and Regulation” in the Form 10-K.10-K for the year ended December 31, 2019.
Regulatory Capital Requirements
Our Company’s consolidated regulatory capital amounts and ratios are presented in the following table:
| | | Actual | | Required for Capital Adequacy Purposes | | Regulatory Minimums To be Well Capitalized | Actual | | Required for Capital Adequacy Purposes | | Regulatory Minimums To be Well Capitalized |
(in thousands, except percentages) | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
June 30, 2019 | | | | | | | | | | | | |
June 30, 2020 | | | | | | | | | | | | |
Total capital ratio | $ | 943,966 |
| | 14.70 | % | | $ | 513,809 |
| | 8.00 | % | | $ | 642,262 |
| | 10.00 | % | $ | 922,404 |
| | 14.34 | % | | $ | 514,566 |
| | 8.00 | % | | $ | 643,207 |
| | 10.00 | % |
Tier 1 capital ratio | 889,376 |
| | 13.85 | % | | 385,357 |
| | 6.00 | % | | 513,809 |
| | 8.00 | % | 841,501 |
| | 13.08 | % | | 385,924 |
| | 6.00 | % | | 514,566 |
| | 8.00 | % |
Tier 1 leverage ratio | 889,376 |
| | 11.32 | % | | 314,358 |
| | 4.00 | % | | 392,947 |
| | 5.00 | % | 841,501 |
| | 10.39 | % | | 323,865 |
| | 4.00 | % | | 404,831 |
| | 5.00 | % |
Common Equity Tier 1 | 779,958 |
| | 12.14 | % | | 289,018 |
| | 4.50 | % | | 417,470 |
| | 6.50 | % | |
Common Equity Tier 1 (CET1) | | 780,373 |
| | 12.13 % |
| | 289,443 |
| | 4.50 | % | | 418,085 |
| | 6.50 | % |
| | | | | | | | | | | | | | | | | | | | | | |
December 31, 2018 |
|
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|
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|
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|
| |
|
| |
|
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December 31, 2019 | |
|
| |
|
| |
|
| |
|
| |
|
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|
|
Total capital ratio | $ | 916,663 |
| | 13.54 | % | | $ | 541,638 |
| | 8.00 | % | | $ | 677,047 |
| | 10.00 | % | $ | 945,310 |
| | 14.78 | % | | $ | 511,760 |
| | 8.00 | % | | $ | 639,699 |
| | 10.00 | % |
Tier 1 capital ratio | 859,031 |
| | 12.69 | % | | 406,228 |
| | 6.00 | % | | 541,638 |
| | 8.00 | % | 891,913 |
| | 13.94 | % | | 383,820 |
| | 6.00 | % | | 511,760 |
| | 8.00 | % |
Tier 1 leverage ratio | 859,031 |
| | 10.34 | % | | 332,190 |
| | 4.00 | % | | 415,238 |
| | 5.00 | % | 891,913 |
| | 11.32 | % | | 315,055 |
| | 4.00 | % | | 393,819 |
| | 5.00 | % |
Common Equity Tier 1 | 749,465 |
| | 11.07 | % | | 304,671 |
| | 4.50 | % | | 440,080 |
| | 6.50 | % | |
Common Equity Tier 1 (CET1) | | 806,050 |
| | 12.60 | % | | 287,865 |
| | 4.50 | % | | 415,805 |
| | 6.50 | % |
The Bank’s consolidated regulatory capital amounts and ratios are presented in the following table:
| | | Actual | | Required for Capital Adequacy Purposes | | Regulatory Minimums to be Well Capitalized | Actual | | Required for Capital Adequacy Purposes | | Regulatory Minimums to be Well Capitalized |
(in thousands, except percentages) | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
June 30, 2019 | | | | | | | | | | | | |
June 30, 2020 | | | | | | | | | | | | |
Total capital ratio | $ | 891,632 |
| | 13.89 | % | | $ | 513,710 |
| | 8.00 | % | | $ | 642,138 |
| | 10.00 | % | $ | 861,083 |
| | 13.39 | % | | $ | 514,400 |
| | 8.00 | % | | $ | 643,001 |
| | 10.00 | % |
Tier 1 capital ratio | 837,042 |
| | 13.04 | % | | 385,283 |
| | 6.00 | % | | 513,710 |
| | 8.00 | % | 780,205 |
| | 12.13 | % | | 385,800 |
| | 6.00 | % | | 514,400 |
| | 8.00 | % |
Tier 1 leverage ratio | 837,042 |
| | 10.66 | % | | 314,024 |
| | 4.00 | % | | 392,530 |
| | 5.00 | % | 780,205 |
| | 9.64 | % | | 323,680 |
| | 4.00 | % | | 404,600 |
| | 5.00 | % |
Common Equity Tier 1 | 837,042 |
| | 13.04 | % | | 288,962 |
| | 4.50 | % | | 417,389 |
| | 6.50 | % | |
Common Equity Tier 1 (CET1) | | 780,205 |
| | 12.13 | % | | 289,350 |
| | 4.50 | % | | 417,950 |
| | 6.50 | % |
| | | | | | | | | | | | | | | | | | | | | | |
December 31, 2018 | | | | | | | | | | | | |
December 31, 2019 | | | | | | | | | | | | |
Total capital ratio | $ | 883,746 |
| | 13.05 | % | | $ | 541,564 |
| | 8.00 | % | | $ | 676,955 |
| | 10.00 | % | $ | 841,305 |
| | 13.15 | % | | $ | 511,638 |
| | 8.00 | % | | $ | 639,547 |
| | 10.00 | % |
Tier 1 capital ratio | 826,114 |
| | 12.20 | % | | 406,173 |
| | 6.00 | % | | 541,564 |
| | 8.00 | % | 787,908 |
| | 12.32 | % | | 383,728 |
| | 6.00 | % | | 511,638 |
| | 8.00 | % |
Tier 1 leverage ratio | 826,114 |
| | 9.96 | % | | 331,829 |
| | 4.00 | % | | 414,786 |
| | 5.00 | % | 787,908 |
| | 10.01 | % | | 314,800 |
| | 4.00 | % | | 393,500 |
| | 5.00 | % |
Common Equity Tier 1 | 826,114 |
| | 12.20 | % | | 304,630 |
| | 4.50 | % | | 440,021 |
| | 6.50 | % | |
Common Equity Tier 1 (CET1) | | 787,908 |
| | 12.32 | % | | 287,796 |
| | 4.50 | % | | 415,706 |
| | 6.50 | % |
The Basel III Capital Rules revisedIn the definition of capital and describe the capital components and eligibility criteria for Common Equity Tier 1 capital, or “CET1”, additional Tier 1 capital and Tier 2 capital. Although trust preferred securities issued after May 19, 2010 generally do not qualify as Tier 1 capital, all outstanding series of our trust preferred securities totaling $114.1 million atsix months ended June 30 2019, are grandfathered and continue to qualify as Tier 1 capital. On July 10, 20192020, the Company announced the redemption ofredeemed all $15.0$26.8 million of its outstanding 10.60%8.90% trust preferred capital securities issued by its Statutory Trust II, and all $10.0 million of its outstanding 10.18% trust preferred securities issued by its Capital Trust III. When these instruments are redeemed, the Company’s regulatory capital ratios are expected to exceed regulatory minimums to be well-capitalized. I. See “Capital Resources and Liquidity Management” for more detail on the redemption of trust preferred securities and related junior subordinated debt.
The Board of Governors of the Federal Reserve System (the “Federal Reserve”), the Office of the Comptroller of the Currency (“OCC”), and the Federal Deposit Insurance Corporation (the “FDIC”, and collectively with the Federal Reserve and the OCC, the “Federal Banking Agencies”), published a final rule on July 22, 2019 that simplifies existing regulatory capital rules for non-advanced approaches institutions, such as the Company. Specifically,Non-advanced approaches institutions will be permitted to implement the Capital Simplifications Final Rule as of its revised effective date in the quarter beginning January 1, 2020, or wait until the quarter beginning April 1, 2020,2020. As of the date of implementation, the required deductions from regulatory capital CET1 elements for mortgage servicing assets (“MSAs”) and temporary difference deferred tax assets (“DTAs”) are only required to the extent these assets exceed 25% of CET1 capital elements, less any adjustments and deductions (the “CET1 Deduction Threshold”). MSAs and temporary difference DTAs that are not deducted from capital are assigned a 250% risk weight. Investments in the capital instruments of unconsolidated financial institutions are deducted from capital when these exceed the 25% CET1 Deduction Threshold. Minority interests in up to 10% of the parent banking organization’s CET1, Tier capital and total capital, after deductions and adjustments are permitted to be included in capital effective October 1, 2019. Also effective October 1, 2019, the final rule makesmade various technical amendments, including reconciling a difference in the capital rules and the bank holding company rules that permits the redemption of bank holding company common stock without prior Federal Reserve approval under the capital rules. Such redemptions remain subject to other requirements, including the Bank Holding Company Act and Federal Reserve Regulation Y. The Company currently estimatesadopted these simplified capital rules should haveduring the first quarter of 2020 and had no material effect on the Company’s regulatory capital and ratios when effective.
ratios.
The Federal Banking Agencies issued in Februaryfinal rules on October 29, 2019 a notice of proposed rulemaking that would provide simplified capital measures, including a simplified measure of capital adequacy for qualifying community banking organizations consistent with section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Growth Act”). Qualifying community banking organizations with less than $10 billion of assets that comply with, and elect to use, the community bank leverage ratio (“CBLR”) framework and that maintain a CBLR greater than 9% would be considered to be “well-capitalized” and would no longer be subject to the other generally applicable capital rules. The CBLR would be used and applied for purposes of compliance with the Federal Banking Agencies’ prompt corrective action rules, and Federal Reserve Regulation O and W compliance, as well as in calculating FDIC deposit insurance assessments. These new rules, and the proposedThe CBLR, among other proposals, reflectreflects the Federal Banking Agencies’banking agencies’ focus on appropriately tailoring capital requirements to an institution’s size, complexity and risk profile. The CBLR will first be available for banking organizations to use in their March 31, 2020 Call Report or Form FR Y-9C. Non-advanced approaches banking organizations will also be able to take advantage of simpler regulatory capital requirements for mortgage servicing assets, certain deferred tax assets arising from temporary differences and investments in unconsolidated financial institutions. As of March 31, 2020, the Company determined to opt out of adopting the new “community bank leverage ratio” given that the perceived benefits provided by the new regulation did not exceed the potential costs considering the Company’s current and projected size and operations.
Off-Balance Sheet Arrangements
The following table shows the outstanding balance of our off-balance sheet arrangements as of the end of the periods presented. Except as disclosed below, we are not involved in any other off-balance sheet contractual relationships that are reasonably likely to have a current or future material effect on our financial condition, a change in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. For more details on the Company’s off-balance sheet arrangements, see Note 16 to our audited consolidated financial statements included in the Form 10-K.10-K for the year ended December 31, 2019.
| | (in thousands) | June 30, 2019 | | December 31, 2018 | June 30, 2020 | | December 31, 2019 |
Commitments to extend credit | $ | 844,170 |
| | $ | 923,424 |
| $ | 786,034 |
| | $ | 820,380 |
|
Credit card facilities (1) | 143,666 |
| | 198,500 |
| |
Letters of credit | 30,564 |
| | 27,232 |
| 15,696 |
| | 17,414 |
|
| $ | 1,018,400 |
| | $ | 1,149,156 |
| $ | 801,730 |
| | $ | 837,794 |
|
| |
(1) | In April 2019, we revised our credit card program to further strengthen credit quality. The Company stopped the charging privileges to our smallest and riskiest cardholders and required repayment of their balances by November 2019. Other cardholders’ charging privileges will end in October 2019 and they will be required to repay all balances by January 2020. |
Contractual Obligations
In the normal course of business, we and our subsidiaries enter into various contractual obligations that may require future cash payments. Significant commitments for future cash obligations include capital expenditures related to operating leases, and other borrowing arrangements. Set forth below are material changes to our existing contractual obligations previously disclosed in the Form 10-K. Other than the changes shown below, there have been no material changes to the contractual obligations previously disclosed in the Form 10-K
FHLB Advances Restructuring
In early April 2020, the Company restructured $420.0 million of its fixed-rate FHLB advances extending their original maturities from 2021 to 2023 at lower interest rates. The Company incurred a loss of $17.0 million as a result of the restructuring which was blended into the new interest rates of these advances, affecting the yields through their remaining maturities. The Company accounted for these transactions as the modification of existing debt in accordance with U.S. GAAP.
Senior Notes Issuance
On June 23, 2020, the Company completed a $60.0 million offering of Senior Notes with a coupon rate of 5.75% and due 2025. The net proceeds, after direct issuance costs of $1.6 million, totaled $58.4 million. The Senior Notes are presented net of direct issuance costs in the consolidated financial statements. These costs will be deferred and amortized over 5 years. The Senior Notes, which are fully and unconditionally guaranteed by the Company’s wholly-owned subsidiary, Amerant Florida, provided the Company with a new source of funding as we continue to navigate the COVID-19 pandemic.
Critical Accounting Policies and Estimates
For our critical accounting policies and estimates disclosure, see the Form 10-K where such matters are disclosed for the Company’s latest fiscal year ended December 31, 2018.2019.
The preparation of our consolidated financial statements in accordance with GAAP requires us to make estimates and judgments that affect our reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under current circumstances, results of which form the basis for making judgments about the carrying value of certain assets and liabilities that are not readily available from other sources. We evaluate our estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.
Accounting policies, as described in detail in the notes to our consolidated financial statements, are an integral part of those consolidated financial statements. A thorough understanding of these accounting policies is essential when reviewing our reported results of operations and our financial position. We believe that the critical accounting policies and estimates discussed below require us to make difficult, subjective or complex judgments about matters that are inherently uncertain. Changes in these estimates, that are likely to occur from period to period, or using different estimates that we could have reasonably used in the current period, would have a material impact on our financial position, results of operations or liquidity.
The COVID-19 pandemic has severely restricted the level of economic activity in the U.S. and around the world since March 2020. Several states and cities across the U.S., including the States of Florida, New York and Texas and cities where the Company has banking centers, LPOs and where the Company’s principal place of business is located, have also implemented quarantines, restrictions on travel, “shelter at home” orders, and restrictions on types of business that may continue to operate. While some of these measures and restrictions have been lifted and certain businesses have reopened in the second quarter 2020, the Company cannot predict when restrictions currently in place may be lifted, or whether restrictions that have been lifted will need to be imposed or tightened in the future if viewed as necessary due to public health concerns. Given the uncertainty regarding the spread and severity of COVID-19 and its adverse effects on the U.S. and global economies, the extent to which the COVID-19 pandemic may impact the Company’s financial condition or results of operations is uncertain and cannot be accurately predicted at this time.
The three and six months ended June 30, 2020 were characterized by heightened uncertainty due to the COVID-19 pandemic, which could impact estimates and assumptions made by management, especially with respect to the adequacy of the Company’s allowance for loan losses and the Company’s evaluation of goodwill for impairment.
Allowance for Loan Losses. The allowance for loan losses represents an estimate of the current amount of principal that we will be unlikely to collect given facts and circumstances as of the evaluation date, and includes amounts arising from loans individually and collectively evaluated for impairment. Loan losses are charged against the allowance when we believe the un-collectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. We estimate the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors to ensure the current allowance balance is maintained at a reasonable level to provide for recognized and unrecognized but inherent losses in the loan portfolio. Allocations of the allowance are made for loans considered to be individually impaired, but the entire allowance is available for any loan that, in management’s judgment, should be charged-off. Amounts are charged-off when available information confirms that specific loans or portions thereof, are uncollectible. This methodology for determining charge-offs is applied consistently to each segment.
We determine a separate allowance for losses for each loan portfolio segment. The allowance for loan losses consists of specific and general reserves. Specific reserves relate to loans that are individually classified as impaired. A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Factors considered in determining impairment include payment status, collateral value and the probability of collecting all amounts when due. Measurement of impairment is based on the excess of the carrying value of the loan over the present value of expected future cash flows at the measurement date, or the fair value of the collateral in the case where the loan is considered collateral-dependent. We select the measurement method on a loan-by-loan basis except that collateral-dependent loans for which foreclosure is probable are measured at the fair value of the collateral.
We recognize interest income on impaired loans based on our existing method of recognizing interest income on nonaccrual loans. Loans, generally classified as impaired loans, for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered TDRs with measurement of impairment as described above.
If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s effective interest rate or at the fair value of collateral if repayment is expected solely from the collateral.
General reserves cover non-individually-impaired loans and are based on historical loss rates for each loan portfolio segment, adjusted for the effects of qualitative factors that in management’s opinion are likely to cause estimated credit losses as of the evaluation date to differ from the portfolio segment’s historical loss experience. Qualitative factors include consideration of the following: changes in lending policies and procedures; changes in economic conditions, changes in the nature and volume of the portfolio; changes in the experience, ability and depth of lending management and other relevant staff; changes in the volume and severity of past due balances, nonaccrual and other adversely graded loans; changes in the loan review system; changes in the value of the underlying collateral for collateral-dependent loans; concentrations of credit and the effect of other external factors such as competition and legal and regulatory requirements, and beginning in the six month period ended June 30, 2020, the probable deterioration in the loan portfolio as a result of the COVID-19 pandemic.
Concentrations of credit risk can affect the level of the allowance and may involve loans to one borrower, borrowers engaged in or dependent upon the same industry, or a group of borrowers whose loans are predicated on the same type of collateral. We are also subject to a geographic concentration of credit because we primarily operate in South Florida, the greater Houston, Texas area and the New York City area. In addition, during the three and six months ended June 30, 2020, the evaluation of credit risk concentrations on our loan portfolio is subject to current economic conditions associated with the COVID-19 pandemic, especially on loans to borrowers in certain industries identified as being more sensitive to the negative impact of deteriorating economic conditions such as restaurants and hotels.
Our estimate for the allowance for loan losses is sensitive to the loss rates from our loan portfolio segments, and to our evaluation of uncertainties associated with current economic conditions derived from the COVID-19 pandemic. We believe the risk ratings, loss severities currently in use, and our evaluation of the uncertainties associated with current economic conditions derived from the COVID-19 pandemic are appropriate. The process of determining the level of the allowance for credit losses requires a high degree of judgment. It is possible that others, given the same information, may at any point in time reach different reasonable conclusions.
Goodwill. Goodwill is evaluated for impairment at least annually and on an interim basis if an event or circumstance indicates that it is likely an impairment has occurred. Based on this evaluation, we concluded goodwill was not considered impaired as of December 31, 2019.
During the second quarter of 2020, the Company assessed the indicators of goodwill impairment and noted certain events that indicated it was more likely than not that there was potential for goodwill impairment and, therefore, concluded an interim test of impairment was required. Triggering events associated with the COVID-19 pandemic included continued disruption to economic activity in the markets we serve, a reported net loss driven primarily by higher estimated provision for loan losses and a lower interest rate environment which has negatively affected our net interest margin. As a result of these conditions, the Company performed a quantitative assessment of goodwill impairment as of June 30, 2020, which included determining the estimated fair value of the reporting unit and comparing that fair value to the reporting unit's carrying amount. The results of the test indicated that the estimated fair value of the reporting unit exceeded its carrying amount at June 30, 2020. Based on this evaluation, we concluded goodwill was not impaired as of June 30, 2020.
We have applied significant judgment for interim and annual goodwill impairment testing purposes. Our Market Risk and Budget and Profitability units provide significant support for the development of judgments and assumptions used for these evaluations. Future negative changes may result in potential impairments of goodwill in future periods.
Determining the fair value of the reporting unit for goodwill impairment testing is considered a critical accounting estimate because it requires significant management judgment and the use of subjective measurements. Variability in the market and changes in assumptions or subjective measurements used to determine fair value are reasonably possible and may have a material impact on our financial position, liquidity or results of operations.
Recently Issued Accounting Pronouncements. There are no recently issued accounting pronouncements that have recently been adopted by us.
For a description of accounting standards issued that are pending adoption, see Note 1 “Business, Basis of Presentation and Summary of Significant Accounting Policies” in the Company’s interim consolidated financial statements in this Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We believe interest rate and price risks are the most significant market risks impacting us. We monitor and evaluate these risks using sensitivity analyses to measure the effects on earnings, equity and the debt securities available for sale portfolio mark-to-market exposure, of changes in market interest rates on earnings, equity and the available for sale portfolio mark-to-market exposure.rates. Exposures are managed to a set of limits previously approved by our board of directors and monitored by management.
Our market risk is measured and monitored by the Asset and Liability function, carried out by our Treasury Department and monitored by the Asset/Liability Committee, or ALCO, and the Market Risk Management unit which reports to our Chief Risk Officer.and Analytics unit. The unit’s primary responsibilities are identifying, measuring, monitoring and controlling interest rate and liquidity risks and balance sheet asset/liability management (“ALM”). It also assesses and monitors the price risk of the Bank’sCompany’s investment activities, which represents the risk to earnings and capital arising from changes in the fair market value of our investment portfolio.portfolio, are monitored by ALCO using, among other tools, comparisons of actual performance versus approved limits maintained and regularly reviewed by the Asset and Liability function.
Among its duties, theThe Market Risk and Analytics unit is in charge of the independent validation of the Asset/Liability Management model. This unit performsalso is in charge of reporting to the following functions:
maintains a comprehensive market riskBoard on our compliance with approved limits, and ALM framework;
measures and monitors market risk and ALM across the organizationproposing changes to ensure that they are withinlimits in line with approved risk limits and reports to the Bank’s asset-liability committee (“ALCO”) and to the board of directors; and
recommends changes to risk limits to the board of directors.appetite.
We manage and implement our ALM strategies through monthly ALCO meetings. The Chief Business Officer participates in the ALCO meetings. In the ALCO, the Bank discusses, analyzeswe discuss, analyze, and decidesdecide on the best course of action to implement strategies designed as part of the ALM process.
Market risks taken by the BankCompany are managed by using thean appropriate mix of marketable securities, wholesale funding and derivativesderivative contracts.
Market Risk Measurement
ALM
We use sensitivity analyses as the primary tool to monitor and evaluate market risk, which is comprised of interest rate risk and price risk. Exposures are managed to a set of limits previously approved by our board of directors and monitored by ALCO.
Sensitivity analyses are based on changes in interest rates (both parallel yield curve changes as well as non-parallel), and are performed for several different metrics, andmetrics. They include three types of analyses consistent with industry practices:
•earnings sensitivity;
•economic value of equity, or EVE; and
•investment portfolio mark-to-market exposure (both(debt and equity securities available for sale and held to maturity)maturity securities).
The Company continues to be asset sensitive, therefore income is expected to increase when interest rates move higher, and to decrease when interest rates decline.move lower.
The high duration of our balance sheet has led to more sensitivity in the market values of financial instruments (assets and liabilities, including off balance sheet exposures). This sensitivity is captured in the EVE and investment portfolio mark-to-market exposure analyses. In the earnings sensitivity analysis, the opposite occurs. The higher duration will produce higher income today and less income variability during the next 12 months.
We monitor these exposures, and contrast them against limits established by our board of directors. Those limits correspond to the capital levels and the capital leverage ratio that we would report taking into consideration the interest rate increase scenarios modeled. Although we model the market price risk of the available for sale securities portfolio, and its projected effects on AOCI or AOCL (a component of stockholders’ equity), the Bank and the Company made an irrevocable election in 2015 to exclude the effects of AOCI or AOCL in the calculation of theirits regulatory capital ratios, in connection with the Federal Banking Agencies adoption of Basel III Capital Rules in the U.S.
Earnings Sensitivity
In this method, the financial instruments (assets, liabilities, on and off-balance sheet positions) generate interest rate risk exposure from mismatches in maturity and/or repricing given the financial instruments’ characteristics or cash flow behaviors such as pre-payment speed.speeds. This method measures the potential change in our net interest income over the next 12 months, which illustratescorresponds to our short term interest rate risk. This analysis subjects a static balance sheet to instantaneous and parallel interest rate shocks to the yield curves for the various interestsinterest rates and indices that affect our net interest income. We compare on a monthly basis the effect of the analysis on our net interest income over a one-year period against limits established by our board of directors.
The following table shows the sensitivity of our net interest income as a function of modeled interest rate changes: | | | Change in earnings (1) | Change in earnings (1) |
(in thousands, except percentages) | June 30, 2019 | | December 31, 2018 | June 30, 2020 | | December 31, 2019 |
Change in Interest Rates (Basis points) | | | | | | | | | | | | | | |
Increase of 200 | $ | 24,021 |
| | 10.9 | % | | $ | 30,993 |
| | 12.8 | % | $ | 19,823 |
| | 11.1 | % | | $ | 14,237 |
| | 6.9 | % |
Increase of 100 | 14,991 |
| | 6.8 | % | | 18,702 |
| | 7.7 | % | 12,446 |
| | 7.0 | % | | 10,091 |
| | 4.9 | % |
Decrease of 25 | (4,271 | ) | | (1.9 | )% | | (5,554 | ) | | (2.3 | )% | (3,368 | ) | | (1.9 | )% | | (4,856 | ) | | (2.3 | )% |
Decrease of 100 | (18,016 | ) | | (8.2 | )% | | (22,789 | ) | | (9.4 | )% | — |
| | — | % | | (20,739 | ) | | (10.0 | )% |
__________________
(1) Represents the change in net interest income, and the percentage that change represents of the base scenario net interest income. The base scenario assumes (i) flat interest rates over the next 12 months, (ii) that total financial instrument balances are kept constant over time and (iii) that interest rate shocks are instant and parallel to the yield curve, for the various interest rates and indices that affect our net interest income.
Net interest income in the base scenario, decreased to approximately $220.0$178.0 million in June 30, 20192020 compared to $242.0$207.0 million in December 31, 2018,2019. This decrease is mainly due to a lower market interest rate environment driven by the emergency rate cuts implemented by the Federal Reserve during March 2020 and secondarily to a smaller balance sheet. The Bankthe global pandemic.The Company continues to be asset sensitive, however given more recent market interest rate expectations, management has been taking steps to reduce interest rate sensitivity.
The Company periodically reviews the scenarios used for earnings sensitivity to reflect market conditions.
Economic Value of Equity Analysis
We use EVE to measure the potential change in the fair value of the Company’s asset and liability positions, and the subsequent potential effects on our economic capital. In the EVE analysis, we calculate the fair value of all assets and liabilities, including off-balance sheet instruments, based on different rate environments (i.e. fair value at current rates against the fair value based on parallel shifts of the yield curves for the various interest rates and indices that affect our net interest income). This analysis measures the long term interest rate risk of the balance sheet.
The following table shows the sensitivity of our EVE as a function of interest rate changes as of the periods presented: | | | Change in equity (1) | Change in equity (1) |
| June 30, 2019 | | December 31, 2018 | June 30, 2020 | | December 31, 2019 |
Change in Interest Rates (Basis points) | | | | | | |
Increase of 200 | (6.58 | )% | | (4.94 | )% | (2.10 | )% | | (11.10 | )% |
Increase of 100 | (1.59 | )% | | (1.21 | )% | 1.3 | % | | (3.86 | )% |
Decrease of 25 | (0.19 | )% | | (0.28 | )% | (0.80 | )% | | 0.24 | % |
Decrease of 100(2) | (1.87 | )% | | (1.86 | )% | — | % | | (0.11 | )% |
_________________________________
(1) Represents the percentage of equity change in a static balance sheet analysis assuming interest rate shocks are instant and parallel to the yield curves for the various interest rates and indices that affect our net interest income.
(2) We have discontinued the decrease of 100 basis point shock scenario at June 30, 2020 due to the unlikely scenario at the current low interest rate environment.
The larger negative effects to EVE as of June 30, 2019, when compared to December 31, 2018,2020 for the 200 and 100 basis point increase scenarios, are principallymainly attributed to ourthe lower average duration of the investment portfolio, higher average duration of FHLB advances, and our terminationthe unwinding in 2019 of the interest rate swaps during the first quarter.we had designated as cash flow hedges. During the periods reported, the modeled effects on the EVE remained within established Company risk limits.
Available for Sale Securities Portfolio mark-to-market exposure
The BankCompany measures the potential change in the market price of its investment portfolio, and the resulting potential change on ourits equity for different interest rate scenarios. This table shows the result of this test as of June 30, 20192020 and December 31, 2018:
| | | Change in market value(1) | Change in market value (1) |
(in thousands) | June 30, 2019 | | December 31, 2018 | June 30, 2020 | | December 31, 2019 |
Change in Interest Rates | | | | | | |
(Basis points) | | | | | | |
Increase of 200 | $ | (117,852 | ) | | $ | (92,213 | ) | $ | (100,107 | ) | | $ | (148,369 | ) |
Increase of 100 | (54,847 | ) | | (44,780 | ) | (42,789 | ) | | (69,956 | ) |
Decrease of 25 | 10,994 |
| | 9,831 |
| 9,547 |
| | 14,008 |
|
Decrease of 100 | 41,142 |
| | 35,916 |
| — |
| | 53,946 |
|
__________________
(1) Represents the amounts by which the investment portfolio mark-to-market would change assuming rate shocks that are instant and parallel to the yield curves for the various interest rates and indices that affect our net interest income.
The average duration of our investment portfolio decreased to 3.12.6 years at June 30, 20192020 compared to 3.43.8 years at December 31, 2018.2019. The lower duration was primarily the result of the salestrategic purchase of $91.2 million of municipal bonds20-year U.S. Treasuries and increased projectedCMOs with prepayment speeds inprotection. Additionally, the mortgage backed securitiesfloating rate portfolio duedeclined to lower rates. Even though the investment duration is lower14.3% at June 30, 2019, there is a higher exposure to interest rate changes when compared to December 31, 2018, as a result of our termination of interest rate swaps during first quarter of 2019.2019 from 23.4% at December 31, 2018.
We monitor our interest rate exposures monthly through the ALCO, and seek to manage these mark-to-market exposures within limits established by our board of directors. Those limits correspond to the capital ratios that we would report taking into consideration the interest increase scenarios modeled. Notwithstanding that our model includes the available for sale securities portfolio, and its projected effect on AOCI or AOCL (a component of shareholders’ equity), we made an irrevocable election in 2015 to exclude the effects of AOCI or AOCL in the calculation of our regulatory capital ratios, in connection with the adoption of Basel III capital rules in the U.S.
Limits Approval Process
The ALCO is responsible for the management of market risk exposures and meets monthly. The ALCO monitors all the Bank’sCompany’s exposures, compares them against specific limits, and takes actions to modify any exposure that the ALCO considers inappropriate based on market expectations or new business strategies, among other factors. The ALCO reviews and recommends market risk limits to our board of directors. These limits are reviewed annually or as more frequently as believed appropriate, based on various factors, including capital levels and earnings. The Market Risk Management unit supports the ALCO in the monitoring of market risk exposures and balance sheet management.
The following table sets forth information regarding our interest rate sensitivity due to the maturities of our interest bearing assets and liabilities as of June 30, 2019 and December 31, 2018.2020. This information may not be indicative of our interest rate sensitivity position at other points in time. In addition, ALM considers the distribution of amounts indicated in the table, including the maturity date of fixed-rate instruments, the repricing frequency of variable-rate financial assets and liabilities, and anticipated prepayments on amortizing financial instruments.
| | | June 30, 2019 | June 30, 2020 |
(in thousands except percentages) | Total | | Less than one year | | One to three years | | Four to Five Years | | More than five years | | Non-rate | Total | | Less than one year | | One to three years | | Four to Five Years | | More than five years | | Non-rate |
Earning Assets | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | $ | 90,317 |
| | $ | 64,504 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 25,813 |
| $ | 217,349 |
| | $ | 181,698 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 35,651 |
|
Securities: | | | | | | | | | | | | | | | | | | | | | | |
Available for sale | 1,501,222 |
| | 389,561 |
| | 339,625 |
| | 248,158 |
| | 499,609 |
| | 24,269 |
| |
Held to maturity | 81,240 |
| | — |
| | — |
| | — |
| | 81,240 |
| | — |
| |
Federal Reserve Bank and FHLB stock | 68,170 |
| | 55,115 |
| | — |
| | — |
| | — |
| | 13,055 |
| |
Debt available for sale | | 1,519,784 |
| | 483,115 |
| | 386,547 |
| | 246,168 |
| | 403,954 |
| | — |
|
Debt held to maturity | | 65,616 |
| | — |
| | — |
| | — |
| | 65,616 |
| | — |
|
Equity securities with readily determinable fair value not held for trading | | 24,425 |
| | — |
| | — |
| | — |
| | — |
| | 24,425 |
|
Federal Reserve and FHLB stock | | 64,986 |
| | 51,803 |
| | — |
| | — |
| | — |
| | 13,183 |
|
Loans portfolio-performing (1) | 5,780,005 |
| | 3,802,118 |
| | 1,041,217 |
| | 612,415 |
| | 324,255 |
| | — |
| 5,795,011 |
| | 3,849,275 |
| | 1,085,277 |
| | 563,490 |
| | 296,969 |
| | — |
|
Earning Assets | $ | 7,520,954 |
| | $ | 4,311,298 |
| | $ | 1,380,842 |
| | $ | 860,573 |
| | $ | 905,104 |
| | $ | 63,137 |
| $ | 7,687,171 |
| | $ | 4,565,891 |
| | $ | 1,471,824 |
| | $ | 809,658 |
| | $ | 766,539 |
| | $ | 73,259 |
|
Liabilities | | | | | | | | | | | | | | | | | | | | | | |
Interest bearing demand deposits | $ | 1,183,051 |
| | $ | 1,183,051 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| $ | 1,186,613 |
| | $ | 1,186,613 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Saving and money market | 1,510,832 |
| | 1,510,832 |
| | — |
| | — |
| | — |
| | — |
| 1,447,661 |
| | 1,447,661 |
| | — |
| | — |
| | — |
| | — |
|
Time deposits | 2,339,771 |
| | 1,503,658 |
| | 507,194 |
| | 312,906 |
| | 16,013 |
| | — |
| 2,434,077 |
| | 1,674,900 |
| | 618,415 |
| | 126,041 |
| | 14,721 |
| | — |
|
FHLB advances and other borrowings | 1,125,000 |
| | 600,000 |
| | 385,000 |
| | 140,000 |
| | — |
| | — |
| |
FHLB advances | | 1,050,000 |
| | 530,000 |
| | 120,000 |
| | 260,000 |
| | 140,000 |
| | — |
|
Senior Notes | | 58,419 |
| | — |
| | — |
| | 58,419 |
| | — |
| | — |
|
Junior subordinated debentures | 118,110 |
| | 64,178 |
| | — |
| | — |
| | 53,932 |
| | — |
| 64,178 |
| | 64,178 |
| | — |
| | — |
| | — |
| | — |
|
Interest bearing liabilities | $ | 6,276,764 |
| | $ | 4,861,719 |
| | $ | 892,194 |
| | $ | 452,906 |
| | $ | 69,945 |
| | — |
| $ | 6,240,948 |
| | $ | 4,903,352 |
| | $ | 738,415 |
| | $ | 444,460 |
| | $ | 154,721 |
| | $ | — |
|
Interest rate sensitivity gap | | | (550,421 | ) | | 488,648 |
| | 407,667 |
| | 835,159 |
| | 63,137 |
| | | (337,461 | ) | | 733,409 |
| | 365,198 |
| | 611,818 |
| | 73,259 |
|
Cumulative interest rate sensitivity gap | | | (550,421 | ) | | (61,773 | ) | | 345,894 |
| | 1,181,053 |
| | 1,244,190 |
| | | (337,461 | ) | | 395,948 |
| | 761,146 |
| | 1,372,964 |
| | 1,446,223 |
|
Earnings assets to interest bearing liabilities (%) | | | 88.7 | % | | 154.8 | % | | 190.0 | % | | 1,294.0 | % | | N/M |
| | | 93.1 | % | | 199.3 | % | | 182.2 | % | | 495.4 | % | | N/M |
|
__________________
| |
(1) | “Loan portfolio-performing” excludes $32.8$77.3 million of non-performing loans. |
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company with the participationmaintains a set of its management, including its Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are
effective as of the end of the period covered by this quarterly report on Form 10-Q. Based upon10-Q to ensure that evaluationinformation we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and asreported within the time periods specified in the rules and forms of the end of the period covered by this Form 10-Q, the Company’sSEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effectiveas appropriate, to allow timely decisions regarding disclosure in its reports that the Company files or submits to the SEC under the Exchange Act.
required disclosures.
Changes in Internal Control Over Financial Reporting
There have beenwere no changes in the Company’sour internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Form 10-Q that havehas materially affected, or areis reasonably likely to materially affect, the Company’sour internal control over financial reporting.
Any control system,Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well conceiveddesigned and operated, can provide only reasonable, not absolute, assurance that its objectives are achieved. Theof achieving the desired control objectives. In addition, the design of a control system inherently has limitations, includingdisclosure controls and procedures must reflect the controls’ costfact that there are resource constrains and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their benefits. Additionally, controls can be circumvented. No cost-effective control system can provide absolute assurance that all control issues and instances of fraud, if any, will be detected.costs.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are, from time to time, in the ordinary course, engaged in litigation, and we have a small number of unresolved claims pending, including the one described in more detail below. In addition, as part of the ordinary course of business, we are parties to litigation involving claims to the ownership of funds in particular accounts, the collection of delinquent accounts, credit relationships, challenges to security interests in collateral and foreclosure interests, that are incidental to our regular business activities. While the ultimate liability with respect to these other litigation matters and claims cannot be determined at this time, we believe that potential liabilities relating to pending matters are not likely to be material to our financial position, results of operations or cash flows. Where appropriate, reserves for these various matters of litigation are established, under FASB ASC Topic 450, Contingencies, based in part upon management’s judgment and the advice of legal counsel.
A lawsuit was filed in September 2017 in Miami-Dade County Circuit Court, Florida and has been amended multiple times. The claims are against Amerant Trust and Kunde Management, LLC (“Kunde”). Kunde was established as a Managing Partner of Kunde, CV to manage trustsKunde, CV for the respective benefit of Gustavothe eight siblings of the Marturet Machado’s wife and his siblings. Amerant Trust is the trustee of these trusts and is Kunde’s manager.family. The plaintiff is a beneficiary of one trust establishedKunde and is an aunt of Gustavo Antonio Marturet Sr.,Medina, a Company director, and a sister-in-law of Mr. Gustavo Antonio Marturet Sr.’sMedina’s mother, a principal Company shareholder.
ThisAs previously disclosed, this action allegesincluded allegations of breaches of contract, fiduciary duty, accounting and unjust enrichment, and mismanagement of KundeKunde. The parties entered into a confidential settlement agreement and seeks damages inthe court entered an unspecified amount.agreed order of dismissal with prejudice on July 6, 2020. The Company denies the claims, and believes these are barred by the statute of limitations and is defending this lawsuit vigorously. The parties began mediation on January 22, 2019, pursuant to court order, and settlement discussions through the mediator are ongoing. The Company cannot reasonably estimate at this time the possible loss or range of losses, if any, that may arise from this unresolved lawsuit and the timing of any resolution of this action. The Company has incurred approximately $502,885$1.1 million in legal fees through JulyJune 30, 2019 defending2020 litigating this case. The Company expects to be partially reimbursed for these fees in accordance with the trust agreements and the Kunde organizational documents upon conclusion of this proceeding.
At least quarterly, we assess our liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. For those matters where it is probable that we will incur a loss and the amountfees. The terms of the loss can be reasonably estimated, we record a liability in our consolidated financial statements. These legal reserves may be increased or decreased to reflect any relevant developments based on our quarterly reviews. For other matters, where a loss is not probable or the amount of the loss is not estimable, we have not accrued legal reserves, consistent with applicable accounting guidance. Based on information currently available to us, advice of counsel, and available insurance coverage, we believe that our established reserves are adequate and the liabilities arising from the legal proceedings willsettlement agreement did not have a material adverse effectimpact on our consolidatedthe Company's financial condition. We note, however, that in light of the inherent uncertainty in legal proceedings there can be no assurance that the ultimate resolution will not exceed established reserves. As a result, the outcome of a particular mattercondition or a combination of matters, if unfavorable, may be material to our financial position, results of operations or cash flows for a particular period, depending upon the size of the loss or our income for that particular period.operating results.
ITEM 1A. RISK FACTORS
For detailed information about certain risk factors that could materially affect our business, financial condition or future results see “Risk“Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K.10-K for the year ended December 31, 2019. (the “Form 10-K”) and in Part II, Item 1A of the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (the "First Quarter Form 10-Q"). Set forth below are material changes to our existing risk factors previously disclosed in the Form 10-K and in the First Quarter Form 10-Q and additional risk factors. Other than the risk factors set forth below, addition, there have been no material changes to the risk factors previously disclosed under Part I, Item 1A, “Risk Factors”in the Form 10-K and the First Quarter Form 10-Q.
The COVID-19 pandemic has significantly impacted economic conditions globally and in the United States, has adversely impacted our business, financial condition and results of operations, and the ultimate impact on our business, financial condition and results of operations, will depend on future developments and other factors that are highly uncertain and will be impacted by the scope and duration of the Company’s Form 10-K.pandemic and actions taken by governmental authorities in response.
An additional risk includesoutbreak of a novel strain of the Coronavirus, COVID-19, was first reported in December 2019 and has since spread globally, including to every state in the United States. The World Health Organization declared COVID-19 a pandemic on March 11, 2020, and subsequently, on March 13, 2020, the United States declared a national emergency with respect to COVID-19.
The COVID-19 pandemic has had, and another pandemic in the future could have, a negative impact on the economy and financial markets, globally and in the United States. In many countries, including the United States, the COVID-19 pandemic has had a significant negative impact on economic activity and has contributed to significant volatility and negative pressure in financial markets. The outbreak has been rapidly evolving and, as cases of COVID-19 have continued to increase globally and in the United States, many countries, including the United States, have implemented and in certain cases reinstated measures aimed at containing the spread of COVID-19 including “shelter at home” orders, as well as mandating business and school closures and restricting travel.
Several states and cities across the United States, including the States of Florida, New York and Texas and cities where we have banking centers, LPOs and where our principal place of business is located, have also implemented quarantines, restrictions on travel, “shelter at home” orders, and restrictions on types of business that may continue to operate. While some of these measures and restrictions have been lifted, and certain businesses reopened, the Company cannot predict when restrictions currently in place may be lifted, or whether restrictions that have been lifted will need to be imposed or tightened in the future if viewed as necessary due to public health concerns. For example, the States of Florida and Texas have seen increases in the cases of COVID-19 during the second quarter and into the third quarter which may prompt state or local governments to reinstate certain measures and restrictions. As a result of the COVID-19 pandemic and the measures implemented to contain it, almost every industry has been and is being directly or indirectly impacted, including industries in which our customers operate. A number of our customers impacted by the COVID-19 pandemic have requested and been granted by the Company loan payment relief options, including interest-only and/or forbearance options. In addition, in the first quarter of 2020 and again in the second quarter of 2020, the Company significantly increased its provision for loan losses primarily due to estimated losses reflecting deterioration in the macro-economic environment as a result of the impact of the COVID-19 pandemic across multiple impacted sectors. The longer and more profound the impact of the COVID-19 pandemic has globally, in the United States and on our customers and their businesses, the more likely we will have to recognize loan losses or continue to increase the provision for loan losses. Also, due to the COVID-19 pandemic, the Company completed an assessment of goodwill for potential impairment on an interim basis as of June 30, 2020 and although it did not identify any impairment in the second quarter of 2020, there can be no assurance that prolonged market volatility resulting from the COVID-19 pandemic will not result in impairments to goodwill in future periods.
In addition, as a result of the COVID-19 pandemic and the need to implement social distancing and limit occupancy of businesses in the states and cities where we operate, the majority of our employees are currently working remotely. An extended period of remote work arrangements could introduce operational risks, including but not limited to cybersecurity risks, and limit our ability to provide services and products to our customers and, in general, manage our business.
Also, the COVID-19 pandemic, or a future pandemic, could have material adverse effects on our ability to successfully operate and on our financial condition, results of operations and cash flows due to, several factors including but not limited to the following:
Recent changes tothe reduced economic activity may severely impact our existing credit card programcustomers' businesses, financial condition and liquidity and may affect our credit card losses and adversely affect certain credit card relationships.
Approximately 95%prevent one or more of our credit card holders are foreign, mostly Venezuelan, and the card receivables were reflecting the stressescustomers from meeting their obligations to us in full, or at all, or to otherwise seek modifications of such obligations;
a decline in the Venezuela economy. In April 2019, we revisedcredit quality of our credit card programloan portfolio leading to further strengthen credit quality. We stopped charge privilegesa need to our smallest and riskiest cardholders and required repayment of their balances by November 2019. Other cardholders’ charge privileges will end in October 2019 and they will be required to repay all balances by January 2020. We reduced our credit card receivables from $31.2 million at March 31, 2019 to $26.1 million at June 30, 2019 and increasedincrease our allowance for loan losseslosses;
a decline in the credit quality of loans used as collateral to obtain advances from the Federal Home Loan Bank may trigger a request to replace the loans used as collateral with securities and may negatively impact our liquidity ratio;
a significant decline in the value of the collateral used to secure loans that have a related interest rate swap agreement may limit our ability to realize enough value from the collateral to cover the outstanding balance of the loan and the related swap liability;
any impairment in value of our tangible and/or intangible assets which could be recorded as a result of weaker economic conditions;
the reduced economic activity could develop into a local and/or global economic recession, which could adversely affect the demand for our products and services;
increased unemployment and decreased consumer confidence, which could adversely affect account openings and result in decreased deposit activity and increased withdrawal activity;
the recent action of the Federal Reserve’s Federal Open Market Committee (‘‘FOMC’’) to lower the target federal funds rate, and any future action of the FOMC to lower the target federal funds rate further, may negatively affect our net interest income;
the potential volatility in the fair value and yields of our investment portfolio;
a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our ability to access the debt and/or equity markets in the future on credit cards by $1.2 million to a total of $6.5 million.
We are making these changes to reduce and ultimately eliminateattractive terms, or at all, or negatively impact our credit exposureratings;
any reduction/impairment in value of the collateral used by our customers to secure their obligations with us that could be recorded as a result of weaker economic conditions; and losses
the potential negative impact of a pandemic, including any preventative or protective actions that governments implement to contain it, or the occurrence of cases of COVID-19 at any of our banking centers or offices, may interfere with the ability of our employees and vendors to perform their respective responsibilities and obligations relative to the conduct of our business and, if a significant number of them are impacted, could result in a deterioration of our ability to ensure business continuity during a disruption.
The extent of the impact of COVID-19 over the Company and its customers will depend on international cards. The discontinuancea number of credit cardsissues and future developments, which, at this time, are extremely uncertain and cannot be accurately predicted, including the scope, severity and duration of the pandemic, the actions taken to contain or mitigate the impact of the pandemic, and the repayment termsdirect and indirect effects that the pandemic and related containment measures may have, among others.
The COVID-19 pandemic presents material uncertainty and risk with respect to the financial condition, results of operations, cash flows and performance of the Company and the rapid development and fluidity of the situation surrounding the pandemic prevents any prediction as to its full adverse impact. Moreover, many risk factors described in our Annual Report on outstanding balancesForm 10-K for the year ended December 31, 2019 should be interpreted as heightened risks as a result of the impact of the COVID-19 pandemic.
As a participating lender in the U.S. Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”), the Company and the Bank are subject to additional risks of litigation from the Bank’s customers or other parties regarding the Bank’s processing of loans for the PPP and risks that the SBA may not fund some or all PPP loan guaranties.
On March 27, 2020, the President signed the CARES Act, which included a $349 billion loan program administered through the SBA referred to as the PPP. Under the PPP, small businesses and other entities and individuals can apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to several limitations and eligibility criteria. Since the inception of the PPP on April 2, 2020, the
Bank began participating as a lender in the PPP; however, because of the short timeframe between the passing of the CARES Act and the opening of the PPP, there is some ambiguity in the laws, rules and guidance regarding the operation of the PPP, which exposes the Company and the Bank to risks relating to noncompliance with the PPP. On or about April 16, 2020, the SBA notified lenders that the $349 billion earmarked for the PPP was exhausted. Congress has approved additional funding for the PPP and the President signed into law the Paycheck Protection Program and Health Care Enhancement Act on April 24, 2020.
Recently, several banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP. The Company and the Bank may be exposed to the risk of similar litigation, both from customers and non-customers that approached the Bank regarding PPP loans, regarding its process and procedures used in processing applications for the PPP. For example, the Bank was recently named in a purported class action lawsuit against a number of banks where the plaintiffs allege several claims relating to the failure of the named banks to pay purported agents a fee for the presentation of PPP loan applications. While we do not currently believe this litigation is material and we intend to vigorously defend ourselves, we cannot guarantee that it will be resolved in a manner favorable to the Company or the Bank or that it will not result in significant financial liability or adversely affect the Company's reputation. Additionally, if any additional litigation is filed against the Company or the Bank and is not resolved in a manner favorable to the Company or the Bank, it may result in highersignificant financial liability or adversely affect the Company’s reputation. In addition, litigation can be costly, regardless of the outcome. Any financial liability, litigation costs or damage to our reputation caused by PPP related litigation could have a material adverse impact on our business, financial condition and results of operations.
The Bank also has credit risk on PPP loans if a determination is made by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced by the Bank, such as an issue with the eligibility of a borrower to receive a PPP loan, which may or may not be related to the ambiguity in the laws, rules and guidance regarding the operation of the PPP. In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded, or serviced by the Company, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from the Company.
The fair value of our investment securities can fluctuate due to market conditions out of our control.
We invest in securities, including debt securities available for sale, which are carried at their estimated fair value and pretax unrealized holding gain or loss on a quarterly basis. Factors beyond our control can significantly influence the fair value of investment securities in our portfolio and can cause potential adverse changes to the fair value of these securities. These factors include but are not limited to increases or decreases in interest rates, rating agency downgrades of the securities and defaults.
We may not be able to generate sufficient cash to service all of our debt, including the Senior Notes.
Our ability to make scheduled payments of principal and interest or to satisfy our obligations in respect of our debt or to refinance our debt will depend on existing card balances. Additionally,our future operating performance. Prevailing economic conditions (including low interest rates and reduced economic activity due to COVID-19), regulatory constraints, including, among other things, limitations on distributions to us from our subsidiaries and required capital levels with respect to our subsidiary bank and nonbanking subsidiaries, and financial, business and other factors, many of which are beyond our control, will also affect our ability to meet these needs. We may not be able to generate sufficient cash flows from operations, or obtain future borrowings in an amount sufficient to enable us to pay our debt, or to fund our other liquidity needs. We may need to refinance all or a portion of our debt on or before maturity. We may not be able to refinance any of our debt when needed on commercially reasonable terms or at all.
We and Amerant Florida Bancorp Inc., the implementationsubsidiary guarantor, are each a holding company with limited operations and depend on our subsidiaries for the funds required to make payments of new processes involves operational risks,principal and interest on the Senior Notes.
We and the changesubsidiary guarantor are each a separate and distinct legal entity from the Bank and our other subsidiaries. Our and our subsidiary guarantor’s primary source of funds to make payments of principal and interest on the Senior Notes and to satisfy any obligations under the guarantee, respectively, and to satisfy any other financial obligations are dividends from the Bank. Our and the subsidiary guarantor’s ability to receive dividends from the Bank is contingent on a number of factors, including the Bank’s ability to meet applicable regulatory capital requirements, the Bank’s profitability and earnings, and the general strength of its balance sheet. Various federal and state regulatory provisions limit the amount of dividends bank subsidiaries are permitted to pay to their holding companies without regulatory approval. In general, the Bank may only pay dividends either out of its net income after any required transfers to surplus or reserves have been made or out of its retained earnings. In addition, the Federal Reserve and the FDIC have issued policy statements stating that insured banks and bank holding companies generally should pay dividends only out of current operating earnings.
Banks and their holding companies are required to maintain a capital conservation buffer of 2.5% in addition to satisfying other applicable regulatory capital ratios. Banking institutions that do not maintain capital in excess of the capital conservation buffer may face constraints on dividends, equity repurchases and executive compensation based on the amount of the shortfall. Accordingly, if the Bank fails to maintain the applicable minimum capital ratios and the capital conservation buffer, dividends to us or the subsidiary guarantor from the Bank may be prohibited or limited, and there may be insufficient funds to make principal and interest payments on the Senior Notes or to satisfy any obligation under the guarantee.
In addition, state or federal banking regulators have broad authority to restrict the payment of dividends, including in circumstances where a bank under such regulator’s jurisdiction engages in (or is about to engage in) unsafe or unsound practices. Such regulators have the authority to require that a bank cease and desist from unsafe and unsound practices and to prevent a bank from paying a dividend if its financial condition is such that the regulator views the payment of a dividend to constitute an unsafe or unsound practice.
Accordingly, we can provide no assurance that we or the subsidiary guarantor will receive dividends from the Bank in an amount sufficient to pay the principal of, or interest on, the Notes or to satisfy any obligations under the guarantee. In addition, our right and the rights of our creditors, including holders of the Senior Notes, to participate in the assets of any non-guarantor subsidiary upon its liquidation or reorganization would be subject to the prior claims of such non-guarantor subsidiary’s creditors, except to the extent that we or the subsidiary guarantor may ourselves be a creditor with recognized claims against such non-guarantor subsidiary. The Senior Notes will be guaranteed only by Amerant Florida Bancorp Inc.
We may incur a substantial level of debt that could materially adversely affect our ability to generate sufficient cash to fulfill our obligations under the Senior Notes.
Neither we, nor any of our subsidiaries, are subject to any limitations under the terms of the indenture governing the terms of the Senior Notes from issuing, accepting or incurring any amount of additional debt, deposits or other liabilities, including senior indebtedness or other obligations ranking equally with the Senior Notes. We expect that we and our subsidiaries will incur additional debt and other liabilities from time to time, and our level of debt and the risks related thereto could increase.
A substantial level of debt could have important consequences to us, holders of the Senior Notes and our shareholders, including the following:
making it more difficult for us to satisfy our obligations with respect to our debt, including the Senior Notes;
requiring us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing funds available for other purposes;
increasing our vulnerability to adverse economic and industry conditions, which could place us at a disadvantage relative to our competitors that have less debt;
limiting our flexibility in planning for, or reacting to, changes in our credit card strategy may disrupt,business and have unintended adverse effects on,the industries in which we operate; and
limiting our deposit, loanability to borrow additional funds, or to dispose of assets to raise funds, if needed, for working capital, capital expenditures, acquisitions and wealth management relationships with our existing credit card holders.other corporate purposes.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.None.
ITEM 6. EXHIBITS
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| |
Exhibit Number | Description |
3.1.14.1 | |
3.1.2 | |
3.24.2 | Amended and Restated Bylaws of the Company, effectiveFirst Supplemental Indenture, dated as of June 5, 201923, 2020, among the Company, Amerant Florida Bancorp Inc., and The Bank of New York Mellon, as Trustee (incorporated herein by reference to Exhibit 3.24.2 to the Company’s Current Report on Form 8-K, filed on June 7, 2019)23, 2020). |
4.3 | |
4.4 | |
10.1 | |
22 | |
31.1 | |
31.2 | |
32.1 | |
32.2 | |
32.2 | |
101.INS | XBRL Instance Document |
101.SCH | XBRL Taxonomy Extension Schema Document |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
104 | Cover Page Interactive Data (embedded within XBRL documents) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | AMERANT BANCORP INC. (Registrant) |
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Date: | August 12, 20197, 2020 | | By: | /s/ Millar Wilson |
| | | | Millar Wilson |
| | | | Vice-Chairman and Chief Executive Officer (Principal Executive Officer) |
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Date: | August 12, 20197, 2020 | | By: | /s/ Alberto PerazaCarlos Iafigliola |
| | | | Alberto PerazaCarlos Iafigliola |
| | | | Co-PresidentExecutive Vice President and Chief Financial Officer (Principal Financial Officer) |
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